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Educational Funding - USProduct Type: Market Research ReportPublished by: Mintel International Group Ltd. Published: December 2005 Product Code: R560-1847 Description In light of the highly publicized costs of a college education today, financing such an education can weigh heavily on the minds of parents and future students. The options that are available range from federal programs to state and institutional aid, to state-sponsored savings plans, created in 1996, that allow households to either lock in current prices for future enrollment or contribute after-tax dollars to investment plans for qualified education expenses. None of these options typically stands alone in covering all or most of college expenses, which makes understanding the interplay of financial aid and savings plans seemingly more complex.
While parents and future students work to understand college financing options, the arena of loans and savings products is constantly evolving. Annual budgetary activities by the federal and state governments often focus on higher education spending and have significant implications for not only end-users but the lending and savings industry in general. In addition, competition for a share in these billion-dollar markets continues to shape product offerings, particularly in the area of private loans. As of the first quarter of 2005, the total assets of 529 plan reached $67.7 billion. The rate of growth in 529 plans has slowed considerably, 4.6%, from last year, compared to the rate of change averaging 66.4% from 2001-2005. In terms of educational loans, the preliminary total assets for 2005 are $76.4 million, with a 12% increase from the previous year. From the perspective of parents and students, challenges for the future include making consistent efforts to educate and prepare the college-bound for the expenses they will incur as well as the financing options available to them. This audience will need to understand the implication of rising tuition costs in the context of aid programs that make college education significantly more affordable than perceived. Some products such as 529 plans that have traditionally been limited in their promotion and marketing to specific audiences, will need to redirect their focus with strategies that emphasize early and manageable contributions. These efforts should extend to audiences that are under-represented in terms of plan participation specifically and college enrollment in general. This Mintel report examines participation in educational savings and loan programs. Also explored in depth are factors contributing to participation, such as legislative action, state budgetary activity, student enrollment and increased tuition costs. Mintel also estimates the size of the educational loans market, which encompasses federal and non-federal loans, as well as the size of the education-targeted savings market. The final section of this report looks at the future, assessing where market trends are headed, and forecasting market size changes through 2008. Table of Contents Introduction and AbbreviationsIntroduction Other relevant reports Scope of the report Abbreviations and terms Abbreviations Terms Executive Summary Ever-changing legislative climate Student enrollment in colleges and universities Tuition and fees on the rise College graduation in more than four years Raising the profile of 529 Plans Market Drivers Legislative action Potential overhaul of the federal loan guarantee program Lack of student awareness of potential changes State budgets Figure 1: Undergraduate grant aid in constant dollars, 1999/2000-2003/04 Figure 2: Undergraduate grant aid in constant dollars, indexed growth and share of total by need-based and non-need-based, 1999/2000-2003/04 Residency benefits stimulate greater in-state participation Figure 3: States offering tax deductions or credits to in-state investors, 2005 Awareness levels remain low on 529s… Figure 4: Awareness of 529 Plans, by type of plan, 2003 …particularly among lower-income households 529 plan managers face challenges Student loan interest rates Figure 5: Student loan rates, 2004/05 and 2005/06 Lender subsidies may be cut Competition between education savings dollars and retirement dollars Figure 6: Primary financial goal among households with children under 18, 2003 Student enrollment Numbers of older students should increase Figure 7: Actual enrollment and middle alternative post-secondary enrollment projections, by gender, and working status, 2002-14 Value of student aid growing faster than student numbers Figure 8: Total aid, per FTE in constant dollars, by program, 1999/2000-2004/05 Tuition costs Public four-year college fees see the greatest increases Fee increases outstrip inflation, but net tuition costs may be lower than expected Figure 9: Average published charges for undergraduates, 2004/05 and 2005/06 Number of years spent in college is on the rise Figure 10: Persistence rates among college students, by institution type, 1989/90 and 1995/96 Market Size and Trends 529 Plans Figure 11: Growth in total assets of 529 Plans, 1998-Q1 2005 Figure 12: Graph: Total assets in 529 Plans and % change, 1998-Q1 2005 Figure 13: Graph: Number of 529 Plans 2000- Q1:2005 Figure 14: Total 529 Plan assets, by state, March 2005 Educational Loans Figure 15: Growth in total assets of education (federal and non-federal) loans, 1995/96-2004/05 Figure 16: Graph: Total educational loans (federal and non-federal) in current dollars, 1995/96 to 2004/05* Market Segmentation Federal, state and institutional aid Private Loans Educational savings plans Federal, state and institutional aid Overview Figure 17: Federal, state and institutional aid for post-secondary education in constant dollars, 2003/04 and 2004/05 Pell Grants key for low-income students… …while FSEOG awards also target low-income undergraduates Federal Loans $63 billion of federal loans awarded in 2004/05 academic year Figure 18: Federal loans for post-secondary education in constant dollars, 2003/04-2004/05 Perkins Loan appropriations have dropped Average value of Stafford subsidized loans falling slightly Figure 19: Stafford subsidized loans for post-secondary education, 2003/04-2004/05 Figure 20: Stafford unsubsidized loans for post-secondary education, 2003/04-2004/05 Value of PLUS loans triples since 1995/96 Figure 21: Plus loans for post-secondary education, 2003/04-2004/05 Private loans Figure 22: Graph: Growth in private loans for post-secondary education, 1996/97-2004/05 Flexibility a key benefit Federal Consolidation Loans Educational Savings Plans 529 Prepaid Tuition Plans Figure 23: 529 prepaid tuition plan assets, at current and constant prices, 1999-2004 Impact on financial aid eligibility must be considered 529 Savings Plans Figure 24: 529 Savings Plan assets, at current and constant prices, 1999-2004 Savings plans offer great investment choice Coverdell Education Savings Accounts Competitive Landscape 529 College Savings Plans American Funds Fidelity Investments Figure 25: Fidelity College savings plans, 2005 TIAA-CREF Tuition Financing Inc. (TFI) Figure 26: TIAA-CREF TFI College savings plans, 2005 The Vanguard Group Figure 27: Vanguard College savings plans, 2005 T. Rowe Price Associates Figure 28: T. Rowe Price College savings plans, 2005 Educational Lending SLM Corporation (Sallie Mae) Early success for Tuition Answer Building sales through partnerships Collegiate Funding Services (CFS) CFS diversifying its product offering The Student Loan Corporation Nelnet Inc. MRU Holdings Inc. (MyRichUncle) Advertising and Promotion Educational loans Overview Figure 29: Top 15 direct mail companies for educational loans, January 2004-July 2005 Collegiate Funding Services Figure 30: Collegiate Funding Services Private Loan program, 2005 Charter One Bank Figure 31: Charter One student loan programs, 2005 Sallie Mae Tuition AnswerSM Loan Figure 32: Sallie Mae Tuition Answer Loan, 2005 Sallie Mae PLUS Loan Figure 33: Sallie Mae PLUS Loan, 2005 Bank of America Stafford Loan Figure 34: Bank of America Stafford Loan, 2005 Educational Savings TIAA-CREF Independent 529 Plan Figure 35: TIAA-CREF Independent 529 Plan, 2005 Ohio CollegeAdvantage 529 Savings Plan Figure 36: Ohio CollegeAdvantage 529 Savings Plan, 2005 Fidelity Advisor 529 Plan Figure 37: Fidelity Advisor 529 Plan, 2005 The Consumer Introduction Future and/or current college-bound household residents Figure 38: Future and/or current college-bound residents, by gender of the respondent, October 2005 Planned methods for paying for college/university expenses Figure 39: Planned methods for paying for college/university expenses, by gender, October 2005 Figure 40: Planned methods for paying for college/university expenses, by presence of children under age 18 in the household, October 2005 Figure 41: Planned methods for paying for college/university expenses, by marital status, October 2005 Types of loans planned to pay for college/university expenses Figure 42: Types of loans planned to pay for college/university expenses, by gender, October 2005 Savings programs held to pay for college/university expenses Figure 43: Ownership of products used for Higher Education expenses, by gender, October 2005 Obtaining college savings program information Figure 44: Source of information about college/university savings programs, by gender, October 2005 Types of college savings plans owned Figure 45: Ownership of college savings products, by age, spring 2005 Figure 46: Ownership of college savings products, by household income, spring 2005 Figure 47: Ownership of college savings products, by level of educational attainment, spring 2005 Figure 48: Ownership of college savings products, by total current assets in the account, spring 2005 Summary Future and Forecast Educational Loans Educational Savings Market forecast Methodology Education Loans Figure 49: Total assets of U.S. educational loans, academic years 2004/05 through 2008/09 529 plans Figure 50: Forecast of total 529 plan assets, at current and constant prices, 2004-09 Appendix: Trade Associations Appendix: What is Mintel? 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