Families Vastly Underestimate College Costs, Study Shows

FE college students sitting at desk with laptops, listening to female teacher.
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How much would you expect to spend on a single year of college for yourself or your child? If you said less than $5,000, you’re not alone. 

Twenty-five percent of parents with high schoolers expect college tuition costs to come in around $5,000 or less per year, while 33% of high school students believe the same, according to a new Fidelity study.

Take a Look: Explore the Cost of Education in the United States
Read: Can You Afford Education in America at These Prices?

The majority of high school parents polled, however, have slightly more realistic expectations. High school parents, on average, expect one year of college to cost $22,257, including tuition, room and board, books and fees. This number still comes in below the average estimated student budget reported by the College Board for the 2020-2021 school year — a cost of $26,820 for an in-state four-year public college, according to CollegeData.com. Even more shocking, the price of one year for out-of-state students at a public college averages $43,280. Students attending a private school out of state could expect to spend an average of $54,880, CollegeData.com states.

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Find Out: How To Ask Your College for More Financial Aid

A ‘Staggering’ Disconnect Between College Costs and Reality

“There is clearly a sharp disconnect between expectations of college costs and reality, which makes it all the more important for parents to start saving early and talking as a family about college costs,” said Rita Assaf, vice president of retirement and college leadership at Fidelity Investments.

Assaf said it was “truly staggering” that 1 in 4 high school parents so vastly underestimated the cost of college. She advised, “Getting a more accurate ballpark of what your child’s dream school could cost is a good first step, and is likely to be more accurate than simply benchmarking against your own college experience, which is what more than a quarter of high school parents in the study confessed to doing.”

Discover: What It Really Costs To Attend America’s Top 50 Colleges

Acknowledging that costs can vary based on the type of educational institution as well as other factors, she pointed high school parents and students to Fidelity’s College Costs Prep tool. The online calculator provides estimates for the total cost of college as well as the average student loan debt held by graduates of each institution, Assaf said.

Check It Out: Where These Top CEOS Went To College

Gen Z Demonstrates Shifting Views on College

Rising college costs combined with living in a pandemic for the past year and a half has given Gen Z unique views about college when compared to past generations, the study also showed.

Six out of 10 college-bound high school students said the pandemic has shaped their view of college education. 

“Their experience learning remotely or in a hybrid model throughout their last two years of high school, not to mention the financial challenges many families have been facing, are playing a formative role in how high school students assess their options for higher education,” Assaf said.

For instance:

  • 53% of high school students rate getting a job that pays enough to support their long-term goals as a top priority, compared to just 42% of recent graduates
  • 55% of high schoolers want a job in a field they are passionate about — or at least, interested in
  • 51% want to set themselves up for a stable career
  • 80% believe a community college can help them achieve their goals

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Alternate Routes: The World’s Most In-Demand Jobs That Don’t Require a Degree

The survey encompassed more than 4,004 high school students in grades 10-12, their parents, recent undergraduates and their parents, according to the Fidelity press release. 

Student Loan Debt and Gen Z

Just as Gen Z students and their parents underestimate the costs of college in the decade ahead, they also underestimate student loan debt, the Fidelity study shows. Four out of every 10 students who plan to take out loans expect a balance of just $5,000 or less by graduation, and 27% of high school parents agree they will have similarly low loans if they borrow the money for their child’s education.

Related: These Elite Colleges Went Virtual — But Raised Tuition Anyway

While the student loan repayment pause that President Joe Biden recently extended is good news for graduates, it underscores the burden student debt can have, Amanda Hahnel, head of student debt retirement for Fidelity Investments, told GOBankingRates. 

“That’s why it’s so important for Gen Zers and their parents to think carefully about how they’ll repay the loans they may take out for education after they graduate,” she said.

However, she did voice optimism about how Gen Z seems to be planning for their financial future. “More than half of high school students say ‘getting a job that pays well enough to support me and my long-term goals’ is among their top goals for higher education, which tells us they are focused on building a strong financial future for themselves, whether or not that includes student loan repayment,” she said.

Discover: What It Would Really Mean To Cancel Student Loan Debt

Paying For College — Even If You Haven’t Started Saving

For high school students and their parents facing sticker shock over the costs of college, there are ways to reduce expenses, Hahnel said. And, as with so many aspects of personal finance, it starts with an open and honest discussion about the actual cost of their college of choice, what the family can contribute and what the student may need to chip in.

Find Out: 21 Budgeting Tips for College Students

It’s also important to get that Free Application for Federal Student Aid, or FAFSA, form filled out so you know how much in need-based aid the incoming student might quality for, which may include Pell Grants and Federal Supplemental Educational Opportunity Grants, which usually do not have to be repaid. Your FAFSA form will also determine your eligibility for Direct Subsidized Loans or a Federal Work Study program.  

“If loans will be part of the equation, be sure you understand the interest rate of any loans as well as when they will start accruing interest, and what kind of protections each loan type may have for the borrower,” Hahnel said.

Regardless of the federal aid available, families can take other cost-saving steps to reduce the overall costs of college or any money that may have to be borrowed to pay for education. Hahnel recommended the following strategies:

  • Evaluate in-state options versus out-of-state schools
  • Consider community college
  • Compare the costs of living on campus versus commuting

Go Here Instead: The Best Colleges With Tuition Under $20K

College Saving Tips If You Have Time To Plan

Ideally, parents will have set up a 529, a tax-advantaged savings plan that grows tax-deferred and can be withdrawn tax-free if used for qualified expenses, Assaf pointed out. 

She noted that of the parents in the Fidelity study who said they started saving early, the median began when the child was 5.

“Many parents find it helpful to reallocate the day-care dollars they spend while their children are babies and toddlers into college savings once their children reach school-age,” she said. “As kids get older, consider putting everyday spending to work with a rewards credit card that earns money toward college savings.” 

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Last updated: Aug. 12, 2021

About the Author

Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten, and three lizards of varying sizes and personalities – plus her two kids and husband. Find her on Twitter, @DawnAllcot.

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