If your college savings fund is generating negative emotions, you’re in good company: A recent survey by Student Loan Hero found that almost half of parents who are saving for their children’s college feel guilty about not saving enough. The survey also showed some rather worrying data:

  • About 1/4 of savers are saving in cash for college, with a comparable amount using savings bonds. With interest rates on cash savings accounts or high-yield CDs topping out at around 1-1.5%, and similar or lower rates on savings bonds, that means that their savings are losing value relative to inflation. For the past decade, college costs have increased on an inflation-adjusted basis by more than 2% annually.
  • About 40% of parents in the survey were still paying back their own student loans. It’s wonderful that they’re trying to reduce the education cost burden for their own children by saving in advance, but it’s a troubling new variation on the “sandwich generation” theme to see parents paying on both their own loans and their children’s college costs.
  • More than 1/3 of parents said they would use their retirement savings to pay for college. This is problematic for several reasons: obviously, it will deplete their retirement savings at a time they’re likely to be close to retirement. Beyond that, parents who borrow from their 401k to pay for college run the risk of facing taxes and penalties should they lose their job prior to paying off the loan. And those over 59-1/2 who withdraw from these accounts will see their EFC increase due to the added income, potentially jeopardizing financial aid.
  • 43% of those surveyed said they would rely on private student loans to finance college. Private loans are rarely the best option; most families are better served by starting with the federal loan programs to ensure that they have access to these programs’ protections. Those considering private loans would do well to see Student Loan Hero’s recommendations for private loans.
  • Worse still, 16% said they would use credit cards to pay for college. If you think that will help you earn rewards, keep in mind that most schools charge a convenience fee averaging over 2.5% for credit card payments– more than double the typical 1% rewards value of the purchase.

Saving for college is an excellent idea; as long as you’re doing it, do it right. Most families are best served by 529 plans, even without state tax deductions. Your savings need to at least hold their value relative to college costs. And if savings plus cash flow available leave you short of the cost of college, then it’s time to look at other cost-saving strategies before going deep into debt.