Seize the Day
May 29 is “529 College Savings Day.” As president of a 529 prepaid tuition plan, this is a time to remember that planning and saving for college is more advantageous than borrowing. To cite one example, to pay $10,000 of college costs, a family could save $58 a month for 10 years at 7% interest. That’s $7,000 in principal and $3,000 coming in earnings. In contrast, borrowers of $10,000 at 7% would have to pay back nearly $14,000 over 10 years.
With this in mind, I was surprised by a couple of responses in our annual Private College 529 Plan Teen College Saving Barometer. ORC International asked 1,002 teens (ages 13-17) what is their greatest worry about paying for their college education. Only 22 percent said “taking on too much student loan debt.” That response ranked third, well behind concern over receiving scholarships and not being able to afford their top college choice.
We also asked 1,000 parents of 13 to 17 year olds the same question. Only 13% ranked concern about student debt as their top worry.
These results came even as both teens and parents expect loans to be a part of their future. About six in ten teens (59 percent) and 56 percent of parents expect to borrow to pay for at least part of college expenses.
We all understand that college is a big expense. For most families, it must be paid for over time. Here’s what I advise families I talk with about saving for college:
• Get started. Save something. Don’t be discouraged. Few people can save the entire cost of college.
• Save regularly. Use an automatic withdrawal plan if you have one.
• Find opportunities to save. Set aside part of a tax refund, ask friends and family to contribute as holiday or birthday gifts, or funnel some of the child-care expense money to college saving once the child starts school.
Where you save does make a difference. Unfortunately, nearly half of families saving for college use a general savings account. You know what interest those accounts pay and it is not keeping up with tuition increases. In contrast, 529 plans offer a range of savings and prepaid options that give you a strong chance of meeting or exceeding tuition increases. Today, “529 College Savings Day” is a great time to develop a college savings plan that will work for you, not against.