x
Breaking News
More () »

Inflation, rising college costs making it difficult for parents saving for kid's education

Financial experts say tax-free 529 accounts can be useful tools for getting parents through the choppy waters of saving for their children's college education.
Credit: terovesalainen - stock.adobe.com
Man counting college savings fund, tuition fee or student loan with calculator.

OHIO, USA — As the nation’s consumers continue to reel from high rates of inflation and as a student debt crisis continues to dominate headlines, parents saving up for their children’s college education can feel like they are swimming in choppy waters.

A new study by Fidelity investment advisors highlights that uncertainty.

Nearly 80-percent of parents are saving for their kid's college, a daunting enough task during times of low inflation.

But as the cost of living in general and the cost of college continues to rise, many families are concerned they might not be able to save like they need to.

“Inflation really affects the amount of money that people have and they’re really trying to balance day to day expenses and long-term savings,” said Rita Assaf, Fidelity Investments Vice President for retirement and college. “And some might be hesitating to put money in long term savings.”

The study identified other reasons for concern as well.

RELATED: Some student loan borrowers will receive automatic refunds for payments made during pause

About a third of parents are still paying off their own student debt, exacerbating the problem of paying for the next generation’s education.

At the same time, 30-percent of parents are just guessing how much to save.

But even with all the uncertainty in the market, financial experts remind people that every dollar saved for college is one dollar less they will need to take out in debt.

That’s why many recommend setting up a 529 college savings plan – an account where money grows tax free and can be taken out tax free when used for school-related expenses.

"There's actually some flexibility with 529's. It doesn't have to be used just for college education, and we've seen it expand to K-12 expenses but there's also flexibility in paying for student loan debt of up to $10,000,” said Assaf.

In addition, in Ohio, there's a tax deduction for 529s of $4,000 per child each year.

RELATED: Yes, the average forgiven PPP loan is far more than $20,000 student loan relief

Fidelity's experts say above all - to truly be prepared for your child's college expenses - have a financial plan and follow these tips.  

It’s important that parents do research. For example, some types of loans have higher interest rates than others and choosing to take out money without understanding the payoff schedule can have a negative effect on other plans you may have.

RELATED: Yes, Parent PLUS loans are eligible for debt forgiveness

Another tip is asking family members to contribute to a child’s dedicated college fund instead of getting them other gifts – something they may be open to even if the child doesn’t grasp the gesture right away.

And as they get older, it’s important to talk to kids about the cost of their education so they are prepared for any financial responsibilities that they might have post-college. Fidelity’s study shows that parents who talk to their children have better savings outcomes.

There are few signs that paying for college is going to get easier anytime soon. That’s why starting early and with a plan can smooth out the rough waters of this important goal.

Click here for a list of frequently asked questions about 529 plans.

MORE FROM WTOL 11:

Paid Advertisement

Before You Leave, Check This Out