Parents are increasingly feeling the strain of ballooning higher education costs and more feel financially unprepared to pay for college this year than in previous years, a recent survey said.
Nearly three-quarters (70%) of parents said they are worried about having enough funds, compared to 66% last year and 63% in 2021, according to the survey from Discover Student Loans.
Nearly half of the parents said they felt less prepared to fund college costs because of inflation and rising costs straining savings and spending; 46% said it was because they did not start saving early enough and 43% cited rising tuition costs.
College tuition and fees have grown twice as fast as the consumer price index (CPI) over the last two decades, according to data from the National Center for Education Statistics (NCES) reported by Best Colleges. CPI inflation was 33% from September 2000-September 2020. Tuition inflation was 67%.
The average annual tuition inflation between 2000 and 2020 was 5.1% at public colleges and 3.9% at private colleges, Best Colleges said. Costs rose 4.7% per year at public two-year colleges and 3.1% at private two-year colleges.
“As college costs continue to rise, students and their families need to make sure the school and program their child selects will lead to a meaningful job in their chosen field with a healthy salary,” Discover Student Loans Vice President Rich Finn said. “Families should aim to have conversations early and often about college costs and job and salary prospects after graduation.”
If you hold private student loans, you could consider refinancing them to a better interest rate to lower your monthly payments. You can visit Credible to compare options from different lenders and choose the one with the best rate for you.
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Scholarships and loans fill in the financing gaps
Financial unpreparedness pushed more families to change their college plans, the Discover survey said. For example, 27% said their children had to limit their searches to in-state tuition and 16% said that their children had to look at schools that allowed a commute from home.
Besides limiting where their children go to school, 61% of respondents said they would use scholarships and grants to help pay for their child’s education, up seven points from 2022 and up 14 points from 2021.
Also increasing is the number of families considering student loans to cover college costs. Nearly half (45%) of the parents said they planned to use student loans to pay for college, up 4 points and 18 points from 2022 and 2021, respectively. Fifty-five percent they would use a combination of federal and private student loans, and 42% planned to use federal student loans only.
If you hold private student loans, you could consider refinancing these to a better interest rate to lower your monthly payments. Visit Credible to compare options from different lenders and choose the one with the best rate for you.
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Here’s how you can build college savings
Saving for college in a high-interest rate and high-cost environment can be challenging, but there are several tools that parents can use to help build college funds. Among the most popular are 529 college savings plans or Roth IRAs, according to Experian.
There are more than 16 million open 529 accounts, and over $411 billion has been saved as of December 31, 2022, according to College Savings Plan Network. Investors can withdraw funds from the plan tax-free to cover nearly any college expense.
The drawback, however, is that account earnings could be subject to a 10% tax penalty if funds are used for non-education expenses, according to Experian.
Roth IRAs are retirement accounts but can also be used as a college savings vehicle. Funds used for education expenses are tax-free as long as the account holder is age 59.5 or older when the withdrawal is made, according to Experian.
“Money in a Roth IRA grows tax-free, and you can withdraw funds before retirement without paying an early withdrawal penalty if the money is used to cover education costs for you, your spouse, your children or your grandchildren,” Experian said.
If you have private student loans and don’t qualify for federal debt relief, you could consider refinancing to lower your student loan payments. Contact Credible to speak to a student loan expert and get your questions answered.
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