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Saturday, July 12, 2008

Why Parents Need to Save More for College!

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Parents Saving Only 13% of College Costs
Research shows parents not saving enough
By Joanna Woodworth
Published: July 09, 2008

When three million1 students graduated from high school last month, many of their parents faced the realization that they have insufficient college savings.
Fidelity research2 found that parents of high school seniors expect to have just 13% of the estimated $100,0003 needed to fund a four-year college education. Additionally, parents anticipate student loans to cover 17% of their child's total college expenses, even as loans are projected to become more difficult to secure and may carry higher interest rates and less favorable terms.
According to the College Board, students received a total of $78 billion4 in both federal and private loans for the 2006-07 academic year, illustrating the reliance on financial aid to supplement college costs. Fidelity estimates that in order for parents to cover 17% of college costs in loans, today's high school seniors could incur $25,0005 or more in future debt.
"As college tuition continues to rise year-after-year, financial aid and loans can be part of the overall savings strategy, but it should not be as substitute for starting to save early and often in a tax-advantaged account, like a 529 plan," says Joe Ciccariello, vice president of college planning, Fidelity Personal & Workplace Investing. "In fact, our research shows that parents of children ages 15-18, who currently utilize a 529 plan, have significantly more savings and are on tract to cover almost half of college expenses."
Despite the preparedness of those parents utilizing a 529 plan, many parents (60%) still struggle to understand how savings in a dedicated college savings account are factored into the financial aid formula. Investing in a 529 plan account has a relatively small impact on financial aid because assets in a 529 plan are considered those of the parent not the child. Other savings accounts held in the name of the child or beneficiary may have a greater affect on financial aid eligibility as they are considered as assets of the child.
How Fidelity can help The 529 Plan Comparison Tool and 529 State Tax Deduction Calculator are designed to help you better understand the differences between plans and whether there is a significant tax advantage in your home state.
Learn more about Fidelity managed 529 Plans.
(Please e-mail any comments to Investor's Weekly at
Investors.Weekly@fmr.com.)

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