Guess Who Didn't Save For College
The New York Times, March 8, 1998

[New York Times Sunday business cover story]

THE REV. PATRICK FIORE knew that sending his two children to college would be expensive. A senior pastor at the Christian Life Center, an Assemblies of God church in West Milford, N.J., Mr. Fiore had read articles that suggested socking away $200 or more a month into a college fund.

But for Mr. Fiore, whose wife, Susan, is a co-pastor at the church, that was a ''ludicrous'' sum. ''Who can afford that?'' Mr. Fiore asked. And like a lot of baby boomers, he added, he did not see the point in scrimping to save a few extra dollars. ''We've seen our parents and grandparents' generations live meager lives and not enjoy themselves,'' he said.

So the Fiores spent whatever spare cash they had on little extras for their children, like a new swing set or family trips to Hershey, Pa. ''Our attitude was that God provided for us all along,'' the minister said. ''When it came to college, he would provide for us again.''

Barnard College in Manhattan did provide $14,000 in annual grants to his older child, Bethany, now a 19-year-old sophomore. But to pay the rest of the $125,000-plus bill for four years, Mr. Fiore says that Bethany will have to take out $18,000 in loans. He will borrow $50,000 -- and probably more when Adam, his 15-year-old son, enters college.

''I've got a van with 166,000 miles on it,'' Mr. Fiore said. ''When it dies, I'm going to be in big trouble.''

He won't be the only one. As more children of baby boomers reach college age, the secret is spilling out. Despite being members of one of the best-educated, most affluent generations ever, many of the boomers are not saving nearly enough for their children's college educations -- if they are saving at all. Faced with staggering college costs, a surprising number are throwing up their hands and essentially saying, ''Let someone else provide.''

Studies regularly find that about half the parents who expect their children to go to college do not save for the expense; and many who do save do a poor job.

In a survey commissioned last year by Nationsbank and the Consumer Federation of America, 29 percent of parents who said they were setting aside money for college worried that they were not putting away as much as they should. More than half did not sequester their college savings in a separate account, thereby increasing the odds that the nest egg would be used up on other expenses. And a study released in January by Mosaic Funds, a mutual fund company in Madison, Wis., found that 59 percent of parents who had saved had less than $10,000 put away.

But college costs continue to escalate rapidly: the average annual cost at a four-year public college is now $10,069, and private schools cost more than twice as much, averaging $21,424 a year for tuition, room and board and other expenses, according to the College Board in New York, a nonprofit group that researches higher-education issues.

The results? More middle-income and even upper-income parents are facing cash crises come spring, when college acceptance letters roll in. Inter-generational conflict is rampant -- and so is college-related debt. More than half of all students now leave four-year colleges with loans to pay off. From 1993 to 1996, Federal data show, the average debt load jumped 61 percent, to $11,950, for graduates of public universities, and 40 percent, to $14,290, for those from private colleges.

College officials regard the trend as evidence of a character flaw endemic to the boomers. ''More and more parents are being derelict in their duty,'' said Larry Zaglaniczny, associate director for governmental relations at the National Association of Student Financial Aid Administrators in Washington. ''The older generation knew you had to save for the good things in life. This generation of parents isn't willing to sacrifice like their parents did.''

But baby boomers are facing obstacles that their parents didn't. Having waited longer to become parents, many are saving for their children's college educations as they also save for their own retirements and the care of elderly parents. High divorce rates leave many parents paying for two households. And the escalation of college costs in the last two decades has been unprecedented.

Still, interviews with parents, college officials, financial planners and high school guidance counselors suggest that most of the boomers' ill-preparedness is a result of remarkable indifference to college costs. They have grossly underestimated the price tag -- or deliberately ignored it.

''A lot of parents put their heads in the sand and go into denial,'' said Monique Thomas, a consultant in Darien, Conn., who helps parents apply for financial aid. ''They procrastinate. They figure they'll just muddle through it somehow. And unfortunately, one day reality sets in.''

Even some affluent parents who expect their children to attend expensive, name-brand schools are unprepared to pay the bill.

Living in the pricey community of Short Hills, N.J., Rosalind Smaldon drove expensive vehicles like Jeep Grand Cherokees and Acura Legends and treated her sons to European vacations and Vermont ski trips. ''All of it was easily affordable,'' she said, thanks to a divorce settlement and her salary as an administrator at a Manhattan insurance firm.

But she found herself low on cash when her boys -- Mark, now a senior, and Neil, a junior -- enrolled at the University of Vermont, which costs more than $20,000 a year for an out-of-state student. With just $25,000 saved for emergencies, Ms. Smaldon had destroyed all but one of her credit cards, given up her expensive cars and bought a used 1990 VW Golf. Her sons each will graduate with about $20,000 in debt.

''College is such a rite of passage; you assume your children are going to do this,'' Ms. Smaldon said. ''You're not researching how much it will cost.''

Such stories don't surprise financial planners and accountants, who say clients often go into sticker shock upon hearing the cost. ''The price of college is such a phenomenal number, a lot of people just say, 'Forget it,' '' said Deena Katz, president of Evensky, Brown, Katz & Levitt, a financial planning firm in Coral Gables, Fla.

Assuming that college expenses continue to rise 5 percent a year (as they did in 1997), and that an investment portfolio yields 8 percent annually (far below the stock market's gains the last few years, but about what a balanced portfolio has historically returned), Ms. Katz's office calculated that the parent of a child born today must save $397 a month for the next 18 years to finance four years at a private college; for a public school, the figure is $174.

Of course, many boomer parents do try to plan for college, but their preparations tend to be haphazard. And so they are easily set back by a layoff or an unexpected expense, like medical bills for an elderly parent.

Consider Tom McGrath, a Gaithersburg, Md., father of two boys. With $35,000 in savings and a $100,000-plus annual household income in the late 1980's, Mr. McGrath felt confident that he and his wife could pay at least half of their sons' school expenses when the time came.

But he assumed that a year at a private college would cost about $10,000, less than half the actual cost. And he did not figure that he would be laid off in 1989 from his job as an engineering company executive and, thus, left to exhaust much of his savings when his older son, Matt, was a high school junior. Because of his financial difficulties, Mr. McGrath's sons received more aid than they would probably have qualified for otherwise.

''There are some folks who blew all their money on new cars, but they're not the norm,'' said Mr. McGrath, who borrowed about $65,000 to finance his sons' education -- and now has a new career as a college financial aid consultant. ''A lot of us were just caught off guard.''

In recent years, financial aid officers and high school guidance counselors have seen a stunning rise in middle- and even upper-income families applying for financial aid. Relaxation in 1993 of Federal eligibility standards has contributed to the surge, and counselors acknowledge they have encouraged more parents to apply. Yet, officials talk of a profound change in parents' attitudes as well. Just as they have at the shopping mall and the new-car lot, parents have become more militant about not paying full price for a college education.

''In the 1970's and even the 80's, financial aid was thought of as for the poor,'' said Michael Tedesco, who, since 1974, has worked at New Rochelle High School in Westchester County, N.Y., first as a financial aid counselor and now as a guidance counselor. ''Now with prices escalating, people don't want to exhaust every ounce of savings they have.''

William Stanford, director of financial aid at Lehigh University in Bethlehem, Pa., since 1968, agreed. He has seen parents with incomes of $200,000, even $300,000, seeking financial assistance.

More than one in four families with incomes of $100,000 or more received at least some Federal aid -- mostly low-interest loans -- in the 1995-96 school year, according to the Federal Education Department.

Still, Mr. Stanford offered a positive note: This year he saw an upswing in the proportion of parents who had tried to save.

Meanwhile, a cottage industry of financial aid consultants has sprung up, charging families several hundred dollars to help them hunt for scholarships and loans. Some, like Mr. McGrath, also help parents shape the college search around finances, urging them to have early, frank conversations with their children about what they are willing to pay.

''It isn't easy to talk about finances, especially when it means you have to admit your Achilles' heel,'' said Mr. McGrath, whose firm, Strategies for College, is based in Rutland, Vt. Most parents avoid this conversation, he said, until ''May of senior year, when the kid says he wants to go to the most expensive school.'' That leaves families scrambling.

Joe Spangler of Wheeling, W. Va., for instance, said he knew that his parents would not be able to meet the more than $15,000-a-year expense of his attending Wheeling Jesuit University. But Joe, who will graduate this year with $40,000 in outstanding loans, said he was never told exactly how much he would have to contribute. Once he didn't even discover that he needed to take a loan until just before his tuition was due.

His mother, Sara, a homemaker whose husband, Paul, is a quality-control worker for a Wheeling manufacturer, said: ''You didn't have to be a rocket scientist to figure out we couldn't afford $15,000 a year. And it's not like telling him would have changed his mind about going to this school.''

Guilty about not saving enough, many parents are reluctant to tell children that they cannot attend their first-choice school.

Kathleen Hagberg of Wilton, Conn., said she fell into a depression when her daughter Meghan, now 19, announced that she wanted to go to Barnard. With her son Steffan attending Drexel University, a private college in Philadelphia, Mrs. Hagberg said she had visions of her and her husband, Paul, an independent sales representative, ending up ''sleeping in a box'' downtown.

''I played devil's advocate with myself and thought, 'Why can't we just send her to a state school?' '' she said.

In the end, though, the couple took out a $30,000 home-equity line of credit. Mrs. Hagberg said she started taking an antidepressant and, at 51, took her first job in some 20 years.

Even parents who spent years telling themselves that they would not pay for college are loath to steer their children to less expensive schools.

Janice Carroll and her husband agreed long ago that their two children would have to work their way through college. But now her son Jonathan, 17, wants to attend the University of Chicago, which costs more than $30,000 a year, and Ms. Carroll is ready to kick in about $35,000 total from her late husband's estate -- and has applied for financial aid for the rest.

''He has a dream,'' she said. ''How can you discourage him?''

In part to lessen the need for such 11th-hour planning, Congress last year established a number of new tax-advantaged savings programs, including education I.R.A.'s and various tax credits. In addition, for those whose incomes qualify, the new Roth Individual Retirement Account allows contributions of $2,000 a year per parent; the contributions can be withdrawn tax free, and without penalty, at any time.

Study after study, however, shows that boomers have not saved adequately in tax-deferred retirement accounts, so it remains to be seen whether these incentives will encourage them to save for college.

A different ethic, indeed, seems to be at work among many in this huge generation. For all the parents who lament being so poorly prepared, many others -- even those who did not pay for their own educations -- say children will be better off if they help pay their way through school.

''To just lay everything out on a silver platter isn't part of my value system,'' said Mr. Fiore, the minister in New Jersey.

Mr. McGrath, who went to the United States Merchant Marine Academy, where his undergraduate education was entirely paid for by the Government, agreed. ''If a parent pays for everything all the time, there is a real temptation to party.''

But at least some members of Generation X, the baby busters born in the boomers' wake, see things differently.

Bernard R. Wolfe, a financial planner in Washington, talks of seeing young couples eagerly setting up college funds -- sometimes even before their children are born.

A survey last year by Alliance Capital Management, a mutual fund company in New York, found that 68 percent of parents below the age of 30 were saving regularly for college, compared with 51 percent of those 30 to 49. On average, the younger parents started putting money away when their children were just 2 1/2 years old; boomer savers waited till their children were more than 7.

And so the pendulum swings. In West Virginia, Joe Spangler, single and childless, hopes to start saving as soon as he graduates. ''My grandparents never made a grand amount, but they saved for the future,'' he said. ''That's what I want to do.''

Tools to Help You Get Started

DO you want to start saving for college now? Here are some resources to help your plan:

CALCULATORS Both the National Association of Student Financial Aid Administrators (www.finaid.org) and the Student Loan Corporation (www.salliemae.com) have interactive calculators on their sites on the World Wide Web. Each lets you project what college costs will be for your children and how much you must begin to save.

PREPAID TUITION Fourteen states offer plans that allow families to pay tuition at today's levels, guaranteeing that the money will cover tuition when children are ready. Another seven plan to begin such plans this year, according to the College Savings Plans Network, a Lexington, Ky., trade group. Most of the plans can be used only for state schools.

Five more states, including Connecticut, offer savings trusts -- and 13 others will do so later this year, including New York and New Jersey. These plans, too, allow tuition to be paid in advance, with the nest egg's value growing tax-free, but they do not guarantee that your money will keep up with tuition increases and inflation. The money can be spent at any public or private school in any state, and taxes are paid on the investment gains at the student's presumably lower rate.

The Web site of the plans network (www.collegesavings.org) has links to the sites of many state plans, as well as toll-free numbers and contacts in each state. Information is available at (606) 244-8175.

The College Savings Bank in Princeton, N.J., (800) 888-2723, offers a national prepaid tuition plan that does not restrict school choices.

READING The College Board's ''Meeting College Costs: What You Need to Know Before Your Child and Money Leave Home'' is available for $13.95 by calling (800) 239-5888; Sallie Mae's ''Paying For College'' is free, (800) 891-4599). PAMELA KRUGER

[Photograph]

At left, Joe Spangler, with his sister Amanda, said he was never sure what he would have to contribute for college. His mother, Sara, foreground, said the family's financial strain was obvious. Above, Paul and Kathleen Hagberg took out a home-equity line of credit to pay college costs. (Scott Goldsmith (left) and Tom McDonald for The New York Times)

[Graph]

''Higher-Cost Education''

Total annual expenses for four-year public and private colleges have been rising steadily since 1980. (Source: The College Board)(pg. 11)

[Chart]

''A Worksheet for Parents'' shows a college costs worksheet; Graphs show gradual and lump-sum investments for a college education, over 18 years. (Source: Mutual Fund Education Alliance)(pg. 11)