There’s a smart way to save for college – and hardly any families are using it, reports Tanza Loudenback in a recent post on Business Insider: http://www.businessinsider.com/best-way-save-college-529-plan-2017-7
According to a new report from Sallie Mae , one of the smartest ways to save for college is grossly underutilized by Americans – the 529 college savings plan.
Only 13% of families reported using one to cover college costs for the 2016-2017 school year, according to Sallie Mae’s survey. That’s down from 16% the previous year, and the lowest share in the past five years.
Scholarships and grants covered more than 1/3 of college costs for families who participated in the survey. The rest of the funds came from borrowed money (27%), and student and parent income and savings (24%), which includes 529 plans. Of the families who did use a 529 plan, the average amount saved was $10,031.
Sallie Mae’s full survey can be found here, https://www.salliemae.com/assets/Research/HAP/HowAmericaPaysforCollege2017.pdf
What many people may not realize is 529 plans are incredibly flexible. A parent, grandparent, godparent, or anyone else can open an account and start contributing — whether through direct contributions, payroll deductions, or automatic transfers — before a child is even born. The money grows completely tax-free and can be withdrawn tax-free at any point, so long as it’s used to cover college tuition, fees, books, and supplies.
The average cost per year to attend an in-state public school today — including tuition, room and board, and fees — is $20,090, according to CollegeBoard (https://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2016-17).
If you start saving as soon as your child is born, and continue saving all the way through graduation day, you’ll have to contribute $374 a month for 22 years to pay in full, according to Business Insider’s Abby Jackson.
This assumes that a family begins with $0 in college savings, plans to cover 100% of the costs for full-time attendance at a four-year college, and that costs increase 4% each year, which is close to a 10-year historical rate of increase.
To afford a private college, where the annual tuition is about $45,370 today (according to CollegeBoard), you’ll have to contribute $844 a month for 22 years to cover a child’s college costs.
College is a costly endeavor, that’s no secret, but paying for it doesn’t have to be a huge financial burden, so long as you’re saving the right way.
As a wealth planner, I’m helping parents and grandparents alike in meeting their students’ ever-growing cost of college. If you have questions on how to get started or if you’re not sure that you’re on track to meet these expenses, reach out to me for a free consultation; happy to help.
Lead story, “There’s a smart way to save for college — and hardly any families are using it,” by Tanza Loudenback, contributor to Business Insider, July 24, 2017 Link – http://www.businessinsider.com/best-way-save-college-529-plan-2017-7
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