Parents accurately estimate the net cost of college!

Fidelity Investments finds parents as a group understand how much college costs quite well

A recently issued Fidelity Investments report surveying students and parents about college costs and debt is marred by some flaws, including an imprecise understanding of the higher ed industry and how it works.  Despite these flaws, it contains a few results that are startling because they show parents in the US seem to have – as a group – a quite accurate understanding of college costs:

Parents of high school students estimate a year of college according to the Fidelity survey will on average cost $22.2k.

  • CTAS’ current estimated 2021 Average Net Cost across all degree types is: $21,729.  The Fidelity survey figure is close, especially given sample error bands.
  • The survey wording and methodology aren’t disclosed so one caveat here is that different parents perhaps misunderstood whether college costs included housing & board or not.
  • The accuracy of the average response is nevertheless striking.

1/4 of parents of high schoolers believe the full sticker price of college will be under $5,000.

  • Of course, this is a drastic underestimate of the cost of a 4-year residential college.
  • BUT if you include the universe of 2-year colleges, that 1/4 is reasonable.
    • Approximately 21% of full-time students attend an institution which charges less than $5k in tuition & fees. Many of these schools are nonresidential so incremental room & board costs for students would be minor.
    • If parents factor in likely Pell Grant awards and we take a cut of colleges charging $7,000 or less in strictly tuition & fees, 34% of full-time students attend a school which will likely cost $5k or less after Federal grants.
    • Additionally, 1% of entering college classes pay a net price of under $5,000 at more expensive schools.
  • In short, parents of high schoolers as an aggregate make sensible broad estimates of how many will face minor college costs.

On the savings front, 63% of parents of high schoolers have started saving for college. The median age of their child when they started saving is 5 years old.

  • Many parents are doing what planners have been recommending.
  • Of course, that leaves 1/3 of high school parents who aren’t saving anything.
    • But if you factor in the parents who expect costs under $5k, the savings rate looks less foolish.

Finally, high school students and their parents expect to graduate with approximately $22k in federal student loans (if they plan on taking out loans).

  • Exact number according to the survey is $21,449 for students and $22,587 for parents.
  • This is a bit off but isn’t unrealistic.  The average level of federal student loans for all graduating undergrads in 2019 was $17,949.
    • This figure is derived from the The Center for Access and Success’ 2019 survey of graduating students, which found that 62% of students had Federal student loans and this group graduated with an average debt load of $28,950, including some commercial loans.
    • The commonly reported figures in the press of $28-29k with which you are likely familiar are misleading because the average covers only students with federal loans and excludes the 38% of students without any traceable debt.
      • Traceable because many sources of finance for college may be in essence untraceable, like HELOCS and other commercial loans taken out by parents.

  • Students & families have reasonable estimates of debt loads on graduation.  It would help if media reports featured average figures that included graduates without federal student loans outstanding and if they acknowledged the impossibility of accurately estimating student debt loads.

Finally, to return to our continuing message that undergraduate programs are a commoditized product: 4 in 10 high school students rate cost as the most important consideration in choosing schools.

We don’t want to overstate the significance of these results.  The survey has obvious drawbacks, among them uncertainty about wording of questions.  In fact, we’ll spare readers any dunking on Fidelity for the many misunderstandings they display in reporting results.  But the accurate assessment of college costs on the whole by parents of high schoolers is noteworthy.

Read this post and others at our CTAS Higher Ed Business blog on Substack.