Me first: Fewer parents saving for kids' college education

Parents put less money into college savings plans during the past year, according to new data released this week, perhaps learning the lesson that it's best to take care of yourself first before saving for your child's college expenses.

Assets in college savings plans were an estimated $85.9 billion in the first quarter of 2009, down from $108.7 billion a year ago, or a 21% drop, according to data developed by the Financial Research Corp. and released this week by the College Savings Foundation, or CSF.

And the numbers get worse. Gross sales, or new dollars invested in 529 accounts, fell 37% in the past year, from $2 billion in the first quarter of 2008 to $1.25 billion in the first quarter of this year.

"We're not surprised by that given the market conditions and these trying times," said Kevin McMullen, chairman of CSF, in a telephone interview.
The assets of CSF members represent 39% of the 529 college savings plan market, so it's a good way to measure how much people are putting into the plans that aren't taxed by the federal government as a way to encourage saving for college.

But by looking at the not-for-profit group's recent press release, you'd think 529 investors were holding steady and not contributing as much as they had been. It cites a 3% drop in assets from the fourth quarter of 2008 to the first quarter of 2009, and a 1% drop in gross sales during those same two quarters.

Year-over-year comparisons are standard for such figures, and are more likely to show a trend than quarter-to-quarter movement. While the information that CSF released Tuesday showed only a slight drop from quarter to quarter, I looked back at previous releases from CSF and found that the drops were much bigger during the past year.

McMullen said the quarter-to-quarter figures are positive signs that don't show a big drop, and lead CSF to believe that more parents will again start saving more in 529s.

"We feel better or at least encouraged by these numbers over the first quarter," he said.

As an industry, college savings plans have seen steady increases since they became popular in 2001, McMullen said. Assets hit a peak of $111 billion in the fourth quarter of 2007, but dropped 21% to $88 billion a year later. Even after another 21% annual drop, McMullen is optimistic.

"Parents still think it's important to send their kids to college," McMullen said, citing a recent survey by Country Financial that for the first time in three years parents are putting their children's education ahead of their retirement.

College is still a goal of parents, even in difficult times, he said.

But CSF's own "State of College Savings" survey last year of 800 parents found that more respondents put retirement (57%) ahead of college (45%) as a savings goal.

Surveys often clash, as these two do over putting college savings over saving for retirement. But McMullen said he was pleased with only a small drop in assets and new money coming into 529s over the past two quarters, which "shows at least we're making strides."

"It looks like at least we're starting to see the light at the end of the tunnel," he said.

The automatic savings plans are sorely needed, as the average annual costs of attending a four-year public college have risen 5.7% in the past year, and up 5.6% for a private college, according to CSF figures from The College Board.

Assuming costs increase 5% a year, the projected cost of college in 15 years will be more than $100,000 for a four-year public college and more than $200,000 for four years at a private college.

With or without a recession, those numbers are unlikely to change, so start saving now.

Aaron Crowe is an unemployed journalist in the San Francisco Bay Area. Read about his job search at www.AaronCrowe.net