Morningstar Releases 529 Plan Ratings
Morningstar Inc. released its annual analyst ratings for 529 plans on October 22, 2019. Morningstar rated 62 of the largest 529 college savings plans, assigning them to one of five tiers: Gold, Silver, Bronze, Neutral and Negative.
Morningstar Ratings of 529 Plans
Half of the 529 plans medaled, with 4 Gold, 13 Silver, 13 Bronze, 27 Neutral and 5 Negative ratings. Negative ratings occur when a plan has at least one major flaw.
Morningstar upgraded nine 529 plans and downgraded eight 529 plans. The changes were in the Bronze, Neutral and Negative ratings. There were no changes in the Gold and Silver ratings.
The four 529 plans with Gold ratings include:
- Bright Start College Savings Program (Illinois)
- Invest529 (Virginia)
- my 529/Utah Educational Savings Plan (Utah)
- ScholarShare 529 (California)
The 13 529 plans with Silver ratings include:
- Bright Directions 529 College Savings Program (Illinois)
- CollegeAdvantage 529 Savings (Ohio)
- CollegeAmerica (Virginia)
- Delaware College Investment Plan (Delaware)
- Fidelity Arizona College Savings Plan (Arizona)
- Maryland 529 College Investment Plan (Maryland)
- Michigan Education Savings Program (Michigan)
- Minnesota College Savings Plan (Minnesota)
- New York’s 529 College Savings Program — Direct Plan (New York)
- T. Rowe Price College Savings Plan (Alaska)
- U. Fund College Investing Plan (Massachusetts)
- UNIQUE College Investing Plan (New Hampshire)
Morningstar noted that 529 plans continue to implement fee cuts and other improvements.
Morningstar Ratings are Based on Five Factors
Morningstar ratings of 529 plans are based on five factors, also known as the five Ps.
- Process. The 529 plan’s investment options.
- People. The reputation of the underlying money managers.
- Parent. The 529 plan’s program manager and state oversight.
- Price. The cost of the underlying investment options as compared with similar options.
- Performance. The 529 plan’s risk-adjusted investment performance, including consideration of both past performance and expected future performance.
Differences between Morningstar and Savingforcollege.com Ratings
There are several key differences between the Morningstar and Savingforcollege.com ratings of 529 plans. Investors should consider both sets of ratings, because they complement each other.
- Number of 529 plans rated. Morningstar rates 62 of the largest 529 plans, while Savingforcollege.com rates 100 direct-sold and advisor-sold 529 plans, plus an addition 10 prepaid tuition plans.
- Morningstar rates the 529 plans annually, while Savingforcollege.com rates the 529 plans quarterly.
- Morningstar bases their ratings on Process, People, Parent, Price and Performance and Savingforcollege.com bases its ratings on Performance, Costs, Features and Reliability.
- Morningstar assigns 529 plans to five tiers (Gold, Silver, Bronze, Neutral and Negative) while Savingforcollege.com provides 5-Cap Ratings in half-cap increments, with separate ratings for state residents and non-residents. The separate ratings consider differences in 529 plan benefits for residents who invest in their home state’s 529 plan, such as state income tax breaks, birthday seed grants, matching contributions for low-income children and scholarship promotions.
- In addition to providing ratings, Savingforcollege.com also provides rankings in several categories, such as performance, lowest fees, best for my state and best rated, with separate performance rankings for 1, 3, 5 and 10 years.
- Savingforcollege.com publishes an annual fee study that evaluates the impact of fees on $10,000 of investments in each direct-sold plan.
- Savingforcollege.com publishes an annual ranking of FDIC-insured 529 plans.
A good place to start