You know, some things are just obvious. I doubt that we needed a study to tell us that parents are struggling to save for college. But, apparently someone had money to conduct a study so here goes. According to a study commissioned by Allianz Life of North America (who sells life insurance and annuities), one in four Americans have reduced or stopped their college savings plan. The article goes on to make recommendations on how to alleviate the pressures of saving for college. If you’d like to read the full article, you can find it here.
Let’s take a look at this. The article starts out with the presupposition that this situation is the economy’s fault. However, parents have always struggled to save and pay for college. The fact that the economy has been lackluster for the past three years is simply a coincidence. Honestly, each and every family has their own individualized micro-economy. While someone in the home next door may be out of work, their situation has little to do with what happens in your home. If 25% of Americans are slowing their savings rate, and 44% are not saving at all, that just doesn’t equate to a 9% unemployment rate and an inflation rate hovering around 3%.
I believe that the big reason that parents struggle is the debt load from other purchases that they’ve made. The average American household with credit card debt carries a balance of $15,799 as of May 2011, averaging 15% per year. That means that these households average paying over $2,300 per year in credit card interest alone. The average outstanding balance on automobile loans is $12,902 and the interest rate averages 5% per year on a five-year loan, meaning that another $600 per year in interest is paid on vehicles. Another reason that parents struggle is that they are unwilling to sacrifice lifestyle. A family of four who eats out three times a week can spend $400 per month on eating out. If they reduce that time to once per week and buy additional groceries to eat at home, they could save an additional $200 per month or $2,400 per year. Those dollars spent on interest and lifestyle could be put towards college savings.
The recommendations that are outlined in the article make the assumption that the student has no obligation to pay for their college. I believe a student can actually put themselves through college, shocking as that may be. Even with no college savings, through careful college selection and an intentional work schedule, a student can still manage to pay for college without the assistance of savings or student loans. It won’t be Harvard, but unless you’re a doctor or lawyer then the school name behind your diploma doesn’t matter.
Parents always have struggled to save for college, and the vast majority always will. There are alternatives to those pointed out in the article and even in my blog post. The question is what will you do about it? If you plan to save at all for college, the most important thing is to create your plan and start as soon as possible.