Higher education remains one of the best investments a person can make in a lifetime in terms of employment and income potential, but saving any amount of money in advance can make that education less of a burden upon graduation.
Lexington, Ky. (PRWEB) May 29, 2012
With national student loan debt exceeding $1 trillion and surpassing credit card debt for the first time in U.S. history (1), parents may be questioning if college will still be worth the investment by the time their children turn 18. Yet with 75 percent of American jobs expected to require at least a two-year degree by 2020 (2), a higher education is an opportunity many children can’t afford to miss. On May 29, “5/29 College Savings Day,” the College Savings Plans Network (CSPN) encourages parents to start saving for college to reduce the overall cost of higher education.
“The more a family relies on financial aid and student loan debt, the more costly education becomes, since every $1 of tuition can cost $2 to borrow and repay with interest (3),” said Iowa State Treasurer Michael Fitzgerald, chair of CSPN, a non-profit association that advocates for 529 college savings plans. “Higher education remains one of the best investments a person can make in a lifetime in terms of employment and income potential, but saving any amount of money in advance can make that education less of a burden upon graduation. A 529 college savings plan is one of the best ways for families of all income levels to start saving for future education expenses and decrease their dependence on debt.”
Tips for Getting More from Your Higher Education Investment
Reduce your reliance on loans. More than 60 percent of federal financial aid is in the form of loans, which must be repaid with interest. On average, a year of in-state college tuition and fees cost $17,131 (4), but it will cost $24,942 to borrow that sum and pay it back at 8 percent interest over 10 years (5). Even if you cannot save the entire cost of college, every dollar saved is a dollar that does not need to be borrowed.
Consider a 529 plan. A 529 plan is a tax-advantaged investment plan designed to encourage saving for the future higher education expenses of a beneficiary such as a child, grandchild or any other individual, including oneself. The plans are named after Section 529 of the Internal Revenue Code and are typically administered by state agencies. All withdrawals from 529 plans for qualified education expenses are free from federal income tax, and most states mirror the federal tax advantages by offering state tax-deferred growth and tax-free withdrawals for qualified higher education expenses. Attractive tax benefits and growth opportunities offered by 529 plans can help each dollar go farther when saving for college.
Start now, even if starting small. If you haven’t started to save for future higher education expenses, the present is always the best time to begin. The earlier you start saving, the more time you have for your money to hopefully grow. Many 529 college savings plans accept contributions of as little as $15 to $25 a month, which invested over 18 years, can add up to significant savings that you or your child don’t need to take out in student loans.
Look beyond four-year colleges. Two-year degrees, community colleges and technical programs offer job-seekers valuable skills and higher income potential, without the price tag of a four-year college or university. Assets saved in 529 plans may be used at eligible schools offering adult career training or advanced degrees, including part-time and two-year programs. Also, there is no maximum age for 529 savings plan participants, making them flexible vehicles for anyone seeking more education.
“Even in an uncertain job market, only three percent of 2006-2011 college graduates said they would not have attended college if given the chance to do differently,” said Fitzgerald, citing a recent Rutgers University study (6). “Higher education is clearly still worth it, but it doesn’t have to cost as much if you can make a plan to save. On 5/29 College Savings Day, I invite American families to review their savings options and start a plan to reduce the overall cost of higher education and lessen the burden of student loan debt.”
With more than 100 plans to choose from, it’s easy to find a 529 plan with the right features to meet your college savings goals. To learn more, and to find the right plan for you, visit http://www.CollegeSavings.org.
About College Savings Plans Network (CSPN)
College Savings Plans Network (CSPN) is a leading voice for Section 529 College Savings Plans, one of the most popular, convenient and tax-advantaged ways to save for college. CSPN is a not-for-profit association affiliated with the National Association of State Treasurers (NAST) that brings together state administrators of 529 savings and prepaid plans as well as their private sector partners. Information that families of all income levels can use to make informed saving decisions is available on CSPN’s website, http://www.CollegeSavings.org.
1. Cauchon, David, Student loans outstanding will exceed $1 trillion this year, USA Today, October 25, 2011, http://www.usatoday.com/money/perfi/college/story/2011-10-19/student-loan-debt/50818676/1
2. U.S. Department of Labor, Overview of the 2010–20 projections, March 29, 2012, http://www.bls.gov/ooh/About/Projections-Overview.htm
3. FastWeb LLC, Quick reference guide to evaluating financial aid award letters, http://www.finaid.org/fafsa/FinancialAidAwardLetters.pdf
4. College Board, Trends in college pricing, http://trends.collegeboard.org/downloads/College_Pricing_2011.pdf
5. FinAid.org, Loan calculator, http://www.finaid.org/calculators/loanpayments.phtml
6. Stone, Charley; Van Horn, Carl; Zukin, Cliff, Rutgers University, Chasing the American Dream: Recent College Graduates and the Great Recession, http://www.heldrich.rutgers.edu/sites/default/files/content/Chasing_American_Dream_Report.pdf