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COLLEGE SAVINGS 101

529s on a roll

Posted: 2013-07-25

by Joseph Hurley

529s on a roll

With Strategic Insight's 529 industry conference in Orlando just around the corner, recent news items reporting the growth of 529 plans could not come at a better time.

This week, Sallie Mae and Ipsos Public Affairs released "How America Pays for College 2013," an in-depth annual survey of American families' college funding practices and attitudes. Here's the encouraging news regarding 529 plans:

First, the percentage of families using 529 plans to pay for college rose dramatically, increasing from 11% during the 2011-12 school year to 17% during 2012-13. High-income families (over $100,000) reported the most-frequent use of 529 plans in 2012-13 (26%), but low- and middle-income families also reported large percentage increases from the previous year.

Families that used 529 plans to help pay for college withdrew an average of $7,959 for the 2012-13 school year, according to the survey.

Second, the increase in the number of families using 529 plans led to a sharp increase in the percentage of total college costs being covered by 529 plans, jumping from 4% in 2011-12 to 7% in 2012-13.

Third, the average family withdrew nearly eight times more from a 529 plan than from a retirement account (IRA, 401(k), etc.) to pay for college. And when families reported having "dedicated college savings accounts," 529 plans represented two-thirds of those dedicated funds.

Finally, the survey found that families paying for college without borrowing were four times more likely to be using 529 plans (12%) than families that were borrowing (3%).

Clearly, 529 plans are becoming a powerful antidote for the student loan malady that recently saw federal student loan debt passing the $1 trillion mark. With yesterday's passage of the Bipartisan Student Loan Certainty Act in the U.S. Senate, the stage is now set for substantially higher interest rates on future federal education loans, and the impetus to save with 529 plans becomes even greater.