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5 College Savings Obstacles Families Have Faced -- and How to Avoid Them

By Maurie Backman – Sep 14, 2019 at 6:38AM

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You can learn from other people's experience -- and help your kids avoid excessive student loan debt at the same time.

In case you didn't get the memo, the student debt crisis is mounting, and Americans now owe over $1.5 trillion in outstanding loans. Part of the problem boils down to a lack of savings on the part of students and their families.

Of course, saving money for college is easier said than done. In fact, Fidelity recently conducted a study that identified the following obstacles families faced in the course of socking away funds for education purposes.

1. Not making enough money

A good 29% of families included in Fidelity's study cited limited earnings as an obstacle to saving. And it's a valid point: Low and middle earners often struggle to make ends meet, let alone set aside money for college.

Group of four young adults gathered around a laptop outdoors


That said, putting away even a small amount of money over a lengthy period of time can make a difference. If you were to save $50 in a college fund over 18 years and invest that money at an average annual 7% return, which is doable with a 529 plan, you'd have about $20,400. Is that enough to pay for the typical four-year, in-state public school degree? No. But it's enough to cover almost half of that tuition, which could help minimize any associated student debt for your child.

2. Not starting early enough

As is the case with any milestone you're saving for, the sooner you start setting funds aside for it, the more successful you're apt to be. Yet 27% of families admit they didn't start a college fund early enough, and came up short as a result. To avoid having that happen, pledge to set up a dedicated education account as soon as your first child is born. Even if you only start out contributing $20 a month to it, you'll have the option to immediately invest that money for added growth, as we saw in the example above.

3. Not accurately estimating college costs

For 26% of families, the actual cost of college was higher than what they anticipated ahead of time. To avoid a shortfall in college savings due to inaccurate information, keep tabs on what higher education expenses look like (with the understanding that they're likely to increase from year to year).

For the 2018-2019 academic year, the average cost of tuition and fees at a four-year, public in-state school was $10,230, but it was $26,290 for a four-year, public out-of-state school. The average four-year private college, meanwhile, cost $35,830. Of course, these are just averages, so your best bet is to more thoroughly research college prices once your child is closer to applying.

4. Expecting more from scholarships or grants

An estimated 25% families got less money from scholarships or grants than anticipated for college. Unfortunately, these gifts aren't always so easy to come by, so you may be better off not counting on them when estimating your college costs. That said, it pays to see if your employer offers a scholarship program. Many large companies do, and if your child is eligible, it could save you some money.

5. Not saving enough

Not shockingly, not saving enough was an obstacle for 24% of families looking to put a child through college. While it's true that socking away even a small amount of money over time will make a difference, the more you're able to save, the more of your child's education you'll cover. To this end, it pays to comb through your budget and identify expenses you can cut back on to free up money for college savings. That could mean dining out less frequently or even spending more cautiously on things like groceries and clothing.

The less money you save for college, the more debt your child risks taking on. Now that you're aware of the obstacles other families have faced with college savings, you can take steps to avoid the same hiccups. At the same time, be sure to save your money efficiently. A 529 plan will give you tax-free growth on your invested college savings, provided you use that money for qualified purposes. Some states offer local tax incentives for contributing to a 529 as well, so it pays to see if that route is the right one for you.

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