Investing for Kids—Whether or Not They End Up in College

I grew up expecting to go to college. Both of my parents have their degrees, and my mother earned her master’s taking night classes when I was young. My husband’s experience was similar, and there’s a good chance a college education is in our children’s future, too. But we can’t know this for sure.

College enrollment has been declining for years. The overall number of undergraduate students dropped by more than 900,000 from 2019–2023, representing nearly 6% of total enrollment. In 2018, the college enrollment rate for recent high school grads was 69%. As of October 2023, only 61.4% of graduates aged 16-24 were enrolled in college, with 57.6% of men and 65.3% of women enrolled.

Amidst shifting trends in college enrollment, it can be worth exploring all the options available to your child as they find their way after high school graduation. Building flexible financial plans can help you support them, no matter which path is right for their future.

Why Is College Enrollment Dropping?

For one, the drop in overall enrollment may be partly due to the corresponding decline in birth rates around two decades ago. With fewer traditional college-aged students in the United States, the decline may be simply due to demographic trends.

The percentage of students in the typical age group who enroll at any type of college has also declined. However, data suggests that four-year college enrollment rates have stayed fairly steady since 2014, between 43% and 46%. In contrast, two-year college enrollment, such as community colleges, has seen a more significant enrollment decline, dropping from 29% in 2012 to 17% in 2022.

Some families are still struggling to recover from the financial toll of the pandemic, which may have contributed to a shift away from the college track.

Job Hunting and Apprenticeships Increase

If kids aren’t going to college as they used to, what are they doing instead? In many cases, they’re looking for work. Some are looking for alternative education through apprenticeships, which are on the rise for both skilled trades and white-collar fields.

While overall community college enrollment is down, vocational programs are growing. For example, the number of students studying construction trades at community college has grown by 25%, and mechanics and repair programs are growing as well.

Some students may still plan to attend college, but not right away. In the 2020-2021 academic year, the number of students taking a gap year more than doubled. Students may want to pursue travel, volunteering, or other enriching experiences before heading to college or the workplace.

What the College Decline Means for Your Child’s Future

If your family (like mine) puts a good amount of value on a four-year degree, there’s not necessarily a reason to change your plans. If you’re saving for college because you expect your kids to earn an undergraduate degree, it may be wise to stay the course.

But if your child is leaning more towards a two-year program or an alternative path, or if you simply want to keep their options open, the enrollment decline may prompt you to plan for outcomes other than a bachelor’s degree.

Even if a student enrolls in an undergraduate program, they may choose an alternate path later. Just under two-thirds of first-time students at four-year undergraduate institutions complete a bachelor’s degree within six years. This means one-third of students may decide that college isn’t the right fit for them, for various reasons. If a four-year college track is your plan, it can still be worthwhile to diversify the way you save for your child.

Essentially, changes in enrollment figures don’t mean college is becoming obsolete anytime soon, but it can be a smart idea to prepare for other potential paths after your child graduates high school.

Financially Supporting Kids Outside College

You may want to be ready to help your child build a financial future, whether through college or other paths. These options can be part of a flexible plan to meet your child’s needs:

• Roth IRA: If your child earns income, you can open a Roth IRA for them while they’re still a minor. Saving for retirement early allows more time for returns to grow. Your child can withdraw contributions at any time without taxes or penalties, but they will face taxes and penalties on earnings if they withdraw them before age 59 1⁄2 (with some exceptions, including qualified education expenses). Contribution limits are low compared to other options, and you can’t open a Roth IRA for your child unless they are earning income.

• 529 plan: Money in a 529 plan offers tax-advantaged growth and can cover many college expenses, as well as vocational school and eligible apprenticeship programs. However, you’ll face taxes and penalties if you withdraw money for an unqualified expense, such as gap year travel. On the positive side, however, a recent change in 529 rules enables you to transfer unused educational funds to a Roth IRA, subject to certain limitations.

• UGMA: Investing for your kids through a Uniform Gift to Minors Act (UGMA) account allows you to take advantage of potential market growth and gives your child money they can use without restrictions (e.g., for a car or living expenses as they enter the workforce).

• High-yield savings account: While money in a bank savings account often doesn’t earn enough interest to outpace inflation, it’s typically more secure and easy to access.

Generally, parents use a variety of accounts to save for their kids’ college or future expenses. The right blend for your family can vary depending on your expectations for your child and financial priorities.

Every parent wants their child to reach their full potential. With the evolving college landscape, it’s a good time to consider multiple strategies to prepare for whatever path your child chooses.

Fabric by Gerber Life and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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