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529 E-ditorials

02-3: The 2002 Growth Projection
Joe Hurley
Tuesday, April 2nd 2002

In January of last year I went out on the proverbial limb (see 529 E-ditorial 01-01) to predict that total assets in 529 savings programs would grow from $2.5 billion at the beginning of 2001 to $10 billion by the end of the year. An incredible 400% increase. Not a penny more and not a penny less, according to yours truly.

OK, so I was off by a few pennies. Preliminary data indicates that we ended the year 2001 with approximately $9.5 billion in all 529 savings programs. If there were a couple more weeks in the year I might have been right on the mark, since assets appear to have sailed past $10 billion sometime during the month of January 2002.

No matter how impressed (or unimpressed) you may be by my ability to prognosticate, you should agree with me that the growth of these college savings programs during 2001 was nothing short of fantastic. The events of last year - stock market woes, large-scale layoffs, and unimaginable acts of terrorism - would normally conspire to prevent such a result. Instead, millions of Americans were drawn to 529 savings plans as a place to save for the high and ever-increasing costs of higher education. The major reasons: federal tax exemption and increased flexibility under the 2001 tax laws; a crop of outstanding new 529 plans and improvements to many of the existing programs; generous state income tax deductions for contributions offered in almost two dozen states; and a flood of media attention.

So what about 2002? Where will assets be at the end of this year? Without the benefit of a drum roll the only presentation option is to simply tell you the number. And here it is ... $25 billion.

Twenty-five billion dollars. Yes, I realize that it may appear to some of you that I simply pulled a round number out of the air. And yes, I also realize that my $25 billion figure is higher than some of the other published projections for 529 accumulations. But rest assured that it was derived with the same amount of scientific precision as my $10 billion projection of a year ago. The stock market, interest rates, weather patterns, and the cost of diapers are just a few of the relevant factors thrown into the analysis. In fact, I had to add memory to my Cray supercomputer just to handle all the new inputs for this year.

I'm compelled to provide a couple of caveats, along with a confession. The first caveat is that the $9.5 billion preliminary estimate may require an adjustment when the final compilation of 2001 year-end assets is complete. (I did not want to wait on final figures, however. The benefit of too much hindsight might make me look like a cheater.) The second caveat is that I don't yet have a good estimate of assets in the states' prepaid tuition plans, and so I can't score my 2001 prediction of $1.5 billion in growth for those programs. (All indicators point to a good year for the prepaids.)

Now for the confession. In arriving at the $9.5 billion figure, I moved the assets of the "guaranteed savings" programs in Pennsylvania and Ohio from the prepaid plan column to the savings plan column. This should come as no great surprise to anyone, seeing how I warned in last year's E-ditorial that this would be my fudge factor.

So remember this prediction: $25 billion. Not a penny more and not a penny less. And no more fudge factors, I promise.

» 05-4: The 529 marshals have arrived - 08/30/05
» Our 5.29th-year anniversary - 06/29/05
» 05-2: 529s and the new Bankruptcy Act - 04/28/05
» 05-1: Reform or Deform? - 02/27/05
» 04-6: Perspectives on the 529 debate - 12/28/04
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