As anyone trying to save for college knows, Americans have started to cut back. With rising costs and a stagnant economy, there aren’t many other options for families. As Ylan Q. Mui of the Washington Post reports, a new survey just confirms the obvious:
The study, which was conducted by Gallup, found that the percentage of families who planned to make little or no contribution to tuition increased, while the percentage who expected to cover more than half of expenses decreased. The trends were particularly pronounced in Hispanic families, where the number who thought they could only pay a little jumped from 12 percent to 35 percent.
The percentage of families who now say they’re not saving for college rose from 62 to 68 percent. At the same time, 20 percent of families now rank college as their main financial obligation, compared with 14 percent last year. Families with under $38,000 in income put 8 percent of their budget towards college, while those making more than $100,000 only save 2.6 percent.
The rising cost of college education has become a flashpoint in Washington as the recession hampered families’ ability to foot the bill. According to a survey by the nonprofit College Board, which administers standardized tests, the cost of attending a private university has risen 2.6 percent a year over the past decade, while public college jumped nearly 5 percent annually. President Obama is slated to hold a summit Tuesday on the state of the nation’s community colleges, which have become an increasingly popular option for students seeking affordable alternatives to four-year institutions.
While many families have cut back on savings, others have looked for more creative ways to save, like dipping into retirement savings.
On average, families have saved about $28,000 to pay for college. About 12 percent of that money is in 529 plans, while 14 percent comes from general savings accounts or certificates of deposit. Another 21 percent comes from investments, but the largest portion of that money – 23 percent – is in retirement savings.
Financial experts don’t condone using retirement savings to pay for college. There are penalties for withdrawing money early, and loans against a retirement plan are often restricted and must be paid off rather quickly. If you’re thinking about using retirement savings to pay for college, it might not be the best idea.
“The education and the retirement are two different buckets. We would never put them together,” said Marcia Tillotson, senior vice president of investments for Wells Fargo Advisors. “You can borrow for college. You cannot borrow for retirement.”