DES MOINES — Parents remain determined to save money for college even in the tough economy, but they’re not always choosing the methods that give them the best bang for their buck. The nation’s leading college lender Sallie Mae released Tuesday its second annual study of college students and parents conducted by Gallup. It shows 60% of parents have saved money for their child’s college education, about the same as a year ago. However, it is surprising that nearly a quarter of all college savings has been set aside in retirement accounts including 401(k)s or individual retirement accounts, said Sarah Ducich, senior vice president for public policy at Sallie Mae. The typical family saving for college has amassed an average of $28,102 and is projected to have saved $48,367 by the time their child reaches age 18. DEBT: Student loan debt exceeds credit card debt in USA YOUR MONEY: Student loan program changes affect rates, repayment The problem with relying on retirement accounts is that when money is withdrawn before age 59 1/2, the accountholder must pay taxes on the funds as well as a 10% penalty. As an alternative, some families are choosing to take out a loan against a 401(k) account. This is also problematic because it removes a portion of the retirement fund, reducing the potential for growth. Also there’s the possibility that the loan will need to be repaid quickly if the accountholder changes jobs. Whether an outright withdrawal or a loan, either way, parents are shortchanging their retirement savings potential, Ducich said. An additional disadvantage to using the 401(k) for college savings is that the money withdrawn this year counts as income for the parents. This means that when the family applies for financial aid the next year, that amount will be included in income, reducing potential aid. Of course not all savings is held in retirement accounts. About 21% of money set aside for college is in investments and 14% sits in general savings accounts, which return very little interest. About 12% is held in dedicated college savings 529 accounts. A few responses in the 2010 study show signs that economic pressures have affected how families are setting their savings goals. About 72% of parents say they expect to pay half or more of their child’s education costs, but that is down from 79% a year ago. Also, fewer parents intend to pay most of the cost with 27% saying that this year, compared with 33% in 2009. That’s one more indicator that the recession has forced people to make decisions about their money, said Bill Diggins, a senior consultant at Gallup Inc., who helped conduct this year’s survey. Economic confidence has dropped over the last couple of years and discretionary spending has gone down and continues to fall. Savings rates however, have increased. Diggins said Gallup research indicates about two-thirds of those who are saving more say it’s a permanent change. “We’re finding people will pay for and sacrifice for things they value,” Diggins said. “It’s clear from these studies that they continue to place a high priority on college for their kids.” The study illustrates that point with 21% of parents saying college savings is their most important savings goal, up from 14% in 2009. Saving for retirement fell to 22% as the most important savings priority from 27%. About 38% of families said they are saving the same this year as last year and 34% said they are saving less. About 28% boosted their savings. The study also shows that families understand the need to start early. The average age when parents began a college account is about 3 years old. It’s important now to educate parents on the most efficient ways to save, Ducich said. The dedication to help children obtain a college education is there, it’s now a matter of helping families put that savings to work balancing earning potential with safe investments that help them reach their goals. Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

LAS VEGAS — The annual convention of the Career College Association was just gearing up for the day Thursday when word started circulating that the U.S. Senate’s education committee planned to start this month a series of hearings on the increasing flow of federal student aid money to for-profit higher education . It was a stark reminder — in case anyone here really needed it — that the rapidly growing college sector faces a level of federal scrutiny probably unmatched since the early 1990s, when Congress approved a set of changes to the Higher Education Act aimed at reining in perceived abuses of the financial aid programs by what were commonly referred to as “fly-by-night trade schools.” Just how much today’s environment felt like d?j? vu from 20 years ago depended on whom you talked to here. To many financial analysts, investor types and others who focus on stock prices or otherwise take a short-term view, the mood was one of steady-state alarm, focused on the cloud of intensified federal regulation that has loomed over colleges for the last year. Those in this group believe that the for-profit sector has a target on its back, with a coalition of consumer advocates, short-selling investors (who profit if stock prices fall), and ideological government bureaucrats pushing an aggressive, activist agenda. To some observers who’ve worked in and around the industry longer, though, the current round of federal scrutiny (in the form of potentially tough new rules) — while unfair in their eyes — is a far cry from the ’90s, for a few reasons. First, they argue, for-profit colleges are too embedded in the fabric of higher education, and too essential to meeting President Obama’s goals for increasing the country’s college completion rates, to be dealt with in a way that would seriously damage their ability to contribute to that effort. FOR-PROFIT: Sector leads way in e-textbook use COLLEGE BLOG: New student group support for for-profit association Second, during the purge of the early 1990s, for-profit colleges were singled out for scrutiny, with policies put in place that focused specifically on reining them in. This time around, while some federal policymakers clearly have special concerns about for-profit colleges, higher education leaders in all sectors are feeling (and in many cases bristling at) heightened scrutiny from federal, state and other policymakers who see higher education as underperforming and costing students and taxpayers alike too much. “I don’t know anybody in our sector who doesn’t think that the ’92 amendments, and all the trauma they brought about, ultimately had a positive outcome and changed the nature of quality assurance in this sector for the better — though it was clearly something we resisted at the time,” said Elise Scanlon, a Washington lawyer who spent nearly 20 years as an accreditor of for-profit colleges. “Right now it’s hard to see what could come out of this round that would make things better for us, but it is clearly part of a push for better information about quality in all of higher education, at a time of increasingly scarce resources.” Mood of the meeting By many measures, the advocates for for-profit (or “private sector,” as they prefer to call it) higher education who gathered here for the annual meeting of the sector’s main advocacy group could be feeling good. Enrollments in the institutions have grown to nearly 10% of all postsecondary students, and the economic downturn of the last year has enrollments booming. The exhibit hall at the meeting here was bristling with companies of all sorts seeking to sell their services to the institutions, a reflection of their steady and sturdy growth. Bottom line (as it were), business is booming. And yet, that very same enrollment growth — and the fact that it is driven in significant part with Pell Grants and federal student loans — has given new and added urgency to consumer advocates, federal regulators, and others who believe that the for-profit institutions are charging students too much for an education of inferior quality. (A series of critical news media stories have focused on dubious practices.) Those concerns have been at the forefront of the Education Department’s push since last winter to consider a new mechanism for ensuring that vocational programs are helping their graduates find “gainful employment,” among other rules aimed at bolstering the “integrity” of the federal financial aid programs. The department’s favored approach, which would judge programs based on a ratio comparing the incomes of graduates to their monthly payments on their student loan debt, has been vehemently opposed by many career college officials, who say that instituting such a policy could force the closure of many programs and potentially cut off access to college for tens if not hundreds of thousands of students. Lobbyists for and leaders of the colleges have been feverishly opposing the gainful employment regulation (as well as some of the department’s other expected rules), arguing that department officials do not have sufficient evidence and/or justification to support the approach, urging the Obama administration to reconsider. COLLEGE: What if higher ed just isn’t for everyone? OBAMA GOALS: Community colleges like new attention They appear to have made at least minor advances in slowing down the department’s progress in recent days. On Friday, the Office of Management and Budget placed a cryptic note in the Federal Register concluding that the department’s proposed program integrity rules could have a major economic impact, a designation that requires the Education Department to strengthen the evidence it must provide to justify the need for the regulation. In announcing a June 24 hearing (and “a series” of others to follow) by the Senate Committee on Health, Education, Labor and Pensions, Sen. Tom Harkin (D-Iowa), the panel’s chairman and long a critic of corporate higher education, cited on Thursday the rapid expansion of for-profit colleges and of the federal student aid funds flowing to them. “Students at for-profit institutions are borrowing more, and more frequently, than their peers at nonprofit schools, and according to the Department of Education, one in five students who left a for-profit college in 2007 defaulted on their loan within three years,” the committee’s news release said. “We need to ensure for-profit colleges are working well to meet the needs of students and not just shareholders,” said Harkin. “We owe it to students and taxpayers to make sure these dollars are being well spent.” For-profit college leaders said they welcomed the chance to tell their story. “Nontraditional students are the new tradition in higher education, and federal student aid is helping millions of working adults get the skills and abilities they need to compete in a global workforce,” Harris Miller , president of the Career College Association, said in a statement. “For these students to be successful, however, change is needed. Private sector institutions are bringing important innovations to postsecondary education, and we welcome the opportunity for a full and open exchange with the committee. These hearings will give our inclusive educational institutions an opportunity to address myths with facts and figures.” To critics of the colleges who see them as under siege from federal policymakers and others, that may sound like bravado. But it’s a view shared by some others who’ve seen for-profit higher education survive previous tough scrutiny, as in 1992. “Back then, lots of people said, ‘Oh my god, the world’s going to end, it’s going to put us all out of business,’” Nancy Broff, a Washington lawyer and former general counsel of the Career College Association, said of the 1992 renewal of the Higher Education Act. “The reality is that this is a very adaptable and resilient group of people and institutions, and they have learned to adapt. And they will this time, too.” Leaders in the sector express confidence that even as federal policymakers seek greater oversight of the institutions, they will avoid steps that could severely impair the colleges’ ability to meet Americans’ demand for higher education, especially at a time when many public institutions are cutting their enrollments because of budget gaps. The country cannot come close to President Obama’s college completion goal without help from the private sector colleges, they say. “The long-term trend is that we need more [higher education] capacity,” said Daniel Hamburger, president and chief executive officer of Devry, Inc. “In the end, I’m confident that smart people will generally find solutions that are in students’ best interests.”