Sallie Mae and Gallup Research Reveals Families of All Incomes Are Saving For College Yet Most Fall Short of Goals

(BUSINESS WIRE)--Families of low and modest incomes who are saving for college save as much or more as a percentage of income as families in higher income brackets, says a new study released today from Sallie Mae and Gallup. On average, parents who save for college earmark 3.6 percent of annual income for their child’s education, while households earning under $50,000 set aside 7.5 percent of their annual income. Based on a nationally representative survey of more than 1,200 parents of children under age 18, “How America Saves for College” identified savings habits and motivators to encourage more families to save.

However, only 29 percent of families are on track to reach their savings goal. The study estimates that parents would need to save an average of 5.7 percent of income annually to meet their self-defined goal by the time their child goes to college.

“The urgency of addressing college affordability has never been felt so strongly across the full spectrum of American families,” said Indiana Treasurer Richard Mourdock. “We are fast approaching an era in which our retirees will be better educated than our workforce—backwards momentum that we must reverse in order to reclaim our leadership position on the world stage. These survey numbers suggest that saving for higher education has become a high priority for the nation, and we should encourage that commitment by providing creative solutions and support for families of all income levels.”

Among the study’s additional findings:

* Parents of children 12 and under are more likely than parents of teens to have saved. On average, parents began saving when their oldest child was almost three years old.
* Families saved an average of $2,676 for college annually, for an average total of $13,827.
* Parents cited employer matching as the top motivator (66%) that would encourage them to save for college, followed by tax benefits (44%). In addition, 25 percent indicated that a shopping rewards program would motivate them to save for college.
* 529 college savings plans are gaining popularity, particularly among families with younger children. While the overall 529 usage rate for savers was 33 percent, parents with children under age seven are twice as likely to turn to 529 plans (43%) as parents of teens (20%).
* Regardless of the parents’ income level or child’s age when parents began saving, the total amount saved increases steadily the longer that dedicated savings vehicles are used. Parents of any income level who had saved seven years or more accumulated two to three times the savings as parents in corresponding income levels who saved for shorter periods of time.
* Families in the Northeast have saved the most with an average savings of $15,846 closely followed by the West with $15,589. The South has an average savings of $13,722 and the Midwest has the lowest with an average of $9,693.

“President Obama has set a goal of achieving the highest proportion of students graduating from college in the world by 2020,” said Albert L. Lord, vice chairman and CEO, Sallie Mae, the nation’s leading saving, planning, and paying for education company. “Students spend 12 years preparing academically, but too many families overlook the need to prepare financially. Even a little bit of savings set aside regularly over time can go a long way toward opening the doors to a college education.”

Sallie Mae helps families plan, save, and pay for college through its Upromise program, which has helped families earn $500 million in college savings rewards, and by administering 529 college savings plans, which offer tax-advantaged ways to save. To help families develop a saving for college plan, Sallie Mae also offers its free online tool, Education Investment Planner (www.SallieMae.com/invest), which enables families to project the total cost of college factoring in the child’s age, type of institution, and the historical rate of increase in tuition.

“How America Saves for College” is part of a series conducted by Sallie Mae and Gallup on how families save and pay for college, and the full report is available at www.SallieMae.com/howAmericasaves.

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