Parents Have Some Wrong Ideas About College Finance
Since you're planning on a financial career, here's some things you should know about financing your college education - if you haven't learned them already: Many families' savings efforts are coming up short as parents spend freely, overestimate the amount of financial aid you'll receive, and count on debt to finance their children's undergraduate educations.
That's according to a survey of parents and financial aid administrators by AllianceBernstein Investments.
While parents understand the high costs of higher education, they have set savings goals that will only cover a fraction of projected college expenses, the survey found. For instance, the amount the typical parent plans to save is likely to cover just 23 percent of undergraduate expenses.
This may result from parents' expectations about receiving financial aid. Many encourage their children to excel in academics, sports and/or artistic or musical pursuits in hopes of earning merit scholarships, and a startling number think their efforts will be successful. Some 72 percent believe their children have "special or unique talents" that will earn them scholarship funds.
But 97 percent of the aid administrators surveyed think parents have a false sense of security about financial aid, and 92 percent say parents overestimate the amount of aid money their children will receive.
While parents say saving for college is a priority, in many cases, their behaviors belie it. Of those who intend to fund at least some of their children's higher education, most spend more on entertainment and/or discretionary purchases than they save for college costs. In the past year, 58 percent spent more eating out or ordering take-out, 49 percent spent more on vacations, and 38 percent spent more on consumer electronics.
To fill the gap between their families' accumulated college savings and college costs, students are relying more heavily on loans than ever before. The parents' survey suggests that this trend will not slow down anytime soon. Two-thirds of parents think their children will leave college with debt, and, on average, they anticipate their kids will owe about $27,500.