Fidelity College Savings Indicator Finds Parents Are Projected to Meet Only 21 Percent of Future College Costs - Three Point Decrease from One Year Ago

Business Wire, Oct 1, 2008

Current Economic Environment Impacting Parents' Ability to Stay on Track; Yet Preparedness Level Doubles for those Saving in a 529 Plan

BOSTON -- Fidelity Investments([R]) today announced the results of its second annual College Savings Indicator (CSI), which found that parents are projected to meet only 21 percent of the total cost of their children's college education, a three percentage point decrease from last year. The CSI calculates how prepared parents are to pay for future college expenses, currently estimated at $120,0001 for today's high school seniors.

According to parents surveyed, the current economic conditions are having a direct impact on their ability to save more for college, with 60 percent citing day-to-day expenses as a barrier. As a result, over one-third (34 percent) of these parents have either decreased the amount they are saving or have stopped saving completely for their children's future college education. In addition, 35 percent of all parents fear they will need to delay retirement to meet college expenses.

In addition to savings obstacles, parents are also facing decreasing funding options. For example, 24 percent of parents who are homeowners report that the recent decline in housing values will directly impact their ability to tap their home equity to fund college expenses. As a result, 14 percent of these parents anticipate taking a personal loan to help cover the shortfall. Furthermore, despite limited availability, significantly more parents this year (62 percent in 2008 vs. 53 percent in 2007) are planning to rely on student loans to help fund expenses. However, nearly one-third (32 percent) do not believe they will receive a loan in the amount they need.

"With college costs rising at twice the rate of inflation, it's critical for families to set a college savings goal early and invest regularly in a tax-advantaged account, such as a 529 plan, to meet expenses," said Joe Ciccariello, vice president of college planning, Fidelity Personal and Workplace Investing. "In fact, this year's Indicator found that parents who are investing in a 529 are on track to cover 40 percent of their children's college education expenses, double the preparedness level of parents nationwide."

Consider the following hypothetical scenario, which illustrates the benefits of saving in a 529 college savings account plan. If an average family, based on the respondent profile2 of Fidelity's College Savings Indicator research, started to save when their child was born, and invested $2,000 annually in a 529 plan with an age-based allocation strategy, they would accrue nearly $67,000 in 18 years. If this family invested the same annual amount in a taxable account, they would potentially miss out on more than $7,000 in savings.

"The extra savings a family could realize by investing in a 529 plan, could not only help them be better prepared to meet rising college expenses, but could also reduce their reliance on other funding sources, such as student loans," said Ciccariello. "For example, to cover a $7,000 savings shortfall through a student loan today could end up costing a family more than $10,000 over the life of that loan."3

IMPORTANT: The projections or other information generated by the Fidelity College Planner tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Estimates of potential savings growth are based on 250 historical market simulations. The market return data used to generate the illustration is intended to provide you with a general idea of how an asset mix similar to that of age-based portfolios in a tax-deferred account, such as a 529 plan account have performed historically. Our analysis assumes a level of diversity within each asset class consistent with a market index benchmark that may differ from the diversity of your own portfolio. Other assumptions include the reinvestment of dividends and interest income, an annualized fee of .30% on the tax-deferred accounts, no management or service fees on custodial or taxable accounts, and no annual account maintenance fees on any accounts. If such expenses and fees had been included, the projected account balances would be lower. The tool assumes a federal income tax bracket of 25%. Unless otherwise known, the tool does not reflect the impact of state and local taxes; and therefore, the hypothetical returns of each account type may be lower. The tax treatment of each account may have a significant impact on the hypothetical results. Results generated by the tool are not intended to project or predict present or future value of actual investments or actual holdings, and they may vary with each use and over time. Periodic investment plans do not ensure a profit and do not protect against a loss in a declining market. Past performance is no guarantee of future results. Diversifying your portfolio does not ensure a profit or protect against a loss.