Families misjudge college savings, study finds

Parents and students have unrealistic expectations about what college will cost— and what graduates will make

Nationally, the average tuition at private four-year schools reached $28,500 this year, according to the College Board.Aram Boghosian for The Boston Globe/file/Globe Freelance

Parents saving for their children’s college expenses may be in need of a reality check.

While Massachusetts families expect to pay most of their children’s college costs, the typical family comes up well short of they money they need by the time college rolls around. To make matters worse, most parents also have wildly unrealistic ideas of what their graduates will earn after college, especially those who nudge their children toward a particular major in hopes of a big paycheck that can help work off school debts.

Those are just two data points from a new study by Fidelity Investments that suggests many parents still do not do enough to prepare for the staggering cost of college.

“School has a cost. You can’t just start thinking about that when your son or daughter applies to school. You have to start earlier,” said Tom Graf, executive director of the Massachusetts Educational Financing Authority, a quasi-state agency that helped conduct the study with Fidelity.

The Boston investment firm manages MEFA’s U.Fund college savings plan and has conducted an annual study of the financial readiness of families saving for college since 2007.

The results from this year’s study do show some encouraging signs of progress: Massachusetts families are saving more than previously and a growing number are invested in tax-free college-savings account, so-called 529 plans.

Some of the study results appear to reflect improving economic conditions. Thirty-nine percent of families will ask their child to attend a public school instead of a private school, down from 45 percent last year. There were similar decreases in the number of families either asking a child to help pay for college and live at home and commute, or asking a nonworking spouse to get a job.

Nationally, the average tuition at private four-year schools reached $28,500 this year, according to the College Board, which administers the SAT test. The average tuition at four-year public schools is $8,244. Locally, private Harvard University charges $38,480 for tuition and fees this academic year, while the University of Massachusetts Amherst will charge $13,230.

Graf noted that while “schools play their part” in rising tuition costs, colleges and universities have also drastically increased the amount of financial aid they award. This year, schools gave $30 billion in aid to undergraduates, up from $21.9 billion in 2007, according to the College Board.

“I have clients who, frankly, are stunned at the costs of school,” said Philip Lee, a financial adviser with Modera Wealth Management in Boston. “It’s more than just tuition — you have to think about the cost of kids going back and forth to school, the application process, and all the visiting you have to do.”

Lee said 529 plans can be an effective way to save for college, but suggested that families who want more savings flexibility consider other means, such as mutual funds. But regardless of how parents save, he recommends they look for scholarships that are specific to their child’s strengths, and then apply to a variety of schools.

“Sometimes, people haven’t been paying attention, because you’re focusing on getting kids through high school and not necessarily thinking about the longer term,” Lee said. “You have to be a smart consumer.”

That means being more realistic about saving. The Fidelity study shows that a typical family won’t even reach 25 percent of its savings goal. That’s putting increased pressure on families to find other ways to pay for school, such as grants, scholarships, and, increasingly, loans. More than half of college graduates now leave school with debt — an average of $25,250 each, according to the Institute for College Access & Success.

And many parents may be misleading themselves into thinking their children will be able to dig out of that financial hole with a high-paying job after college.

The Fidelity study found that parents who guided their children into a specific major for the money expected them to earn an average of $70,300 upon graduation. But the reality is much lower: The average starting salary for the class of 2012 is just $44,442, according to the National Association of Colleges and Employers. Even the better-paying fields come up short of expectations; the median salary for new engineers, for example, is $58,581.

So picking the right major is no substitute for years of saving.

“The single most important thing is starting earlier,” Graf said. “We try to get parents literally upon birth to start thinking about saving for college.”