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Parents Aren’t Saving For A College Fund, But Can We Blame Them?

Students walking across campus at the University of Vermont. CREDIT: AP
Students walking across campus at the University of Vermont. CREDIT: AP

Yevgeniya Bulayevskaya, ‎national director of major gifts programs at City Year said she and her husband, Etai Aviel, a moving specialist with Oz Moving and Storage, plan to put only $2,000 or so away for their 2-year-old son’s college education. She says that the plan could change, but the family has decided it would be better to save for other things that benefit their son, and let him pay for it when he’s in school, and in turn teach him the value of working for an education.

“I got through school on federal aid and student loans, and I think there is a value in paying for your own education. So we’d like our son to do the same. We feel that saving our money for his enrichment in childhood such as classes and traveling as a family and investing in some real estate and our IRA, is the better way to go for us,” Bulayevskaya says. “We’ll put away something for books and other fees, but hope our son will work and take out loans for the rest. Perhaps if we come upon big money that plan will change, but we feel like we want our son to truly own his education.”

Bulayevskaya is one of many parents who don’t save for their child’s college education. According to a new Sallie Mae report, the amount parents said they had saved for college fell by 25 percent compared to last year, dropping to $10,040 this year compared to $13,408 last year. Only four in 10 said they were “confident” they could pay for college tuition.

Often, when numbers like these are released the conversation shifts to what parents are doing wrong: Why aren’t they saving enough — is it because Americans have poor saving habits? Is it because they aren’t aware of 529 accounts? Are they lazy or too fearful of the stock market to invest?

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Experts on the cost of higher education and student debt say these are the wrong questions to ask. Yes, some parents could increase their savings or choose a 529 account, but poor parents have very little, if anything, to save, and middle class parents are often forced to choose between saving for retirement and saving for their child’s college tuition. Parents also are increasingly responsible for extra expenses, such as new laptops and lodging for that internship abroad Junior is begging to take.

For poor families, the ability to save for college simply does not exist, and for middle class families, their living costs are rising so fast that saving is increasingly difficult, according to David Bergeron, vice president of postsecondary education at The Center for American Progress. According to a CAP report released in September, “The Middle Class Squeeze,” child care, higher education, health care, housing and retirement, rose by more than $10,000 in the 12 years from 2002 to 2012, while middle class incomes have largely remained stagnant.

“That’s the heart of the problem. Fewer and fewer families are able to save and we shouldn’t expect them to,” Bergeron said. “The higher education financing model is that we use student loans as the primary mechanism for students to pay for college. It has become that way by accident not policy design, but that’s certainly what happened.”

The Obama administration has increased Pell grants by $1,000 and increased support for middle-income families, Bergeron says, but the rates of those increases are much less than the rates of increases in student debt.

“Having more programs doesn’t really solve those problems, because more programs doesn’t result in more money. It just results in more complexity in accessing so it then becomes a treasure hunt,” Bergeron says of grants and scholarships.

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According to The College Board, tuition and fees for public four-year schools rose 225 percent between the 1984–85 school year and 2014–15 school year.

Rick, who asked ThinkProgress not to use his last name, is worried about how he will pay for his 14 year-old daughter’s and 12 year-old son’s education. He found out that he lost his job as a sales training manager for a Silicon Valley tech company only a few days ago. He had a $95,000 salary, but now he believes his next job will offer a salary that is 20 percent less than his original job, if not lower.

In addition, he lives on Long Island, where housing is expensive. His ex-wife works as a teacher and she has car and mortgage payments. It’s equally difficult for her to save for their children’s education. Each of the kids have about $2,000 in a mutual fund set aside for their education.

Rick said he was blown away by the cost of college and says he wouldn’t be able to send them to a private college. He added that helping them pay for graduate school is definitely not an option.

“They won’t be able to afford anything other than a state school because I won’t be able to afford anything else. Maybe if they get scholarships or something, but otherwise I’m not going to be able to send them anywhere but a state school, and even then that might get ridiculous. At this point I don’t even have money for retirement, I have maybe $5,000 in a 401(k).”

He said he’s worried about his children’s opportunity to complete with others who are able to attend prestigious universities.

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“It’s going to put my kids at a disadvantage than other kids globally because college has become a high enterprise now. It’s not about educating people,” he said.

The question about saving for retirement versus saving for a child’s education is a difficult one, but there’s good reason for many parents to choose their retirement fund, advises Carlo Salerno, a higher education consultant for organizations and government entities such as the National Council of Higher Education Resources and the U.S. Department of Education.

“If I’m a poor parent, I’ve got a choice between saving for my child’s college or saving for my own meager retirement, because I don’t have any money anyway. If my son or daughter has to take out loans, a lot of poor families take the view that their child’s whole life is ahead of them and they’re going to make more money, and they have a better chance of paying off those loans as a result,” Salerno says. “And of course, most parents would love to help their children however they can, but we treat education as a forward looking investment, and if we’re going to assume their child will be relatively prosperous, then it kind of makes borrowing less distasteful.”

Many parents are making similar decisions and prioritizing other expenses over college tuition.

A Silver Spring, Maryland mom of two children, an 11 year-old daughter and eight year-old son, who works part-time and didn’t wish to identify herself by name, said she also believes her child will work part-time during their college years, as she did.

“My husband and I will, of course, contribute it as much as we can, but it will certainly be a combination of student loans and they will have to work and get good scholarships to make it a reality. If they have to commute to college and not live on campus — that would be fine with me as well.”

She says she was the first in her family to go to college and graduate. Her parents, who emigrated from Puerto Rico, did not graduate from high school.

“My mom’s education ends at eighth grade. I went to [New York University]. I commuted for four years from my family’s home in Queens. I took out a student loan and I worked on campus. It’s not easy, but it’s possible,” she said. Today, however, NYU’s tuition is about $66,022 per year, and is likely to get even more expensive by the time her kids get to college.

Salerno says the tough part is deciding whether or not the debt you’re going to take on is worth it at the age of 17. He gives the example of other products you buy, such as a can of Coke, where you buy the soda, drink it and immediately realize whether or not your purchase was a smart one and says that higher education just doesn’t work that way.

“The problem is, students have to gamble and guess, and they don’t like taking out large amounts of debt when they don’t know what they’re getting on the back end for it. They’re hoping it’s going to be great but they don’t know and so they make what many see as understandably irrational investment decisions,” Salerno says.

Salerno says it would be a mistake to treat student debt like other kinds of debt, such as credit card debt.

“Student debt is probably the best debt you could ever take on because of all of the hardship provisions and because it’s very easy to access credit. As a student you’ll never be able to access that kind of credit again where you can get $30,000 or $50,000 without a credit check,” Salerno says.

Holly Camenga, an editorial assistant at Johnson Newspaper Corporation, who lives in Lowville, New York, said she hadn’t been able to save anything for her daughters’ educations, who are now 28 and 33, because her and her husband’s paycheck just barely covered the bills, leaving room for few other expenses. She has worked for the company for 38 years and her husband, Verne Camenga, is a lab technician at Kraft Inc. They went to State University of New York schools because they couldn’t afford private colleges. One of her daughters attended Nazareth College in Rochester, which was particularly expensive for the family.

“It was very stressful. Both girls took out their own higher education loans and we took out loans for the balance, which we are still paying on, four years after Jenny graduated,” Camenga said. “Plus, both girls had to work at college and had summer jobs. It was a struggle but they got their education. [She] even went to grad school, paying for her master’s degree herself.”

Her daughter worked as a graduate resident mentor throughout grad school, which gave her free room and board, two free classes each semester and a paycheck.

“They both appreciate their education and really learned how to budget. I wish we could have helped them more since they both will be paying on their college loans for a long time, but it just wasn’t possible,” Camenga said. “If we had it to do over again, I would try to save at least $5 or $10 per week while they were growing up. It would have added up over time and made things much easier.”

Eric Bettinger, an associate professor of economics at Stanford University’s Graduate School of Business, agrees with Salerno’s point that higher education is one of the best investment decisions a person can make, even considering the amount of debt they take on. One thing Bettinger worries about, however, is how students view debt and let it steer their career decisions. He says that graduates facing hardship or poor career prospects should make better use of repayment options, but their anxiety around student debt causes them to make career decisions based on paying off said debt.

Bettinger cites research from a 2011 Princeton University study by Jesse Rothstein that shows debt causes graduates to steer away from lower paid public sector jobs and toward higher paying jobs, and sometimes affects which courses they take during college. “It’s an issue that is worrisome — letting debt dictate their career decisions. People aren’t willing to examine repayment options and they’re not patient about debt,” Bettinger said.

Of course, graduates are concerned about the interest rates on federal loans, which fluctuate from year to year, making it difficult to prepare their budgets ahead of time, and private loans don’t include the same kinds of payment options based on your income that federal loans do.

Still, higher education experts agree that the degree pays off in the long run. A Georgetown University report found that those with a Bachelor’s degree earn 31 percent more than those with an Associate’s degree and 74 percent more than people with only a high school diploma.

Within all kinds of professions, education also makes a difference. For example, the study references a truck driver with less than a high school diploma, who would earn $1.3 million over his or her lifetime, compared with $1.5 million for a truck driver with a high school diploma. Within other professions, a teacher with a Bachelor’s degree could earn $1.8 million over his or her lifetime versus $2.2 million for a teacher with a Master’s degree.

“When you’re earning 30 to 40 percent more, or possibly higher, in earnings over your lifetime, it’s an asset. It’s not tangible, but it’s an asset,” Bettinger said. “Any investment that gives you a 35 percent return for the rest of your life — most people would jump on that.”