College Savings Plans: Then and Now
By Joe Globensky, RFC®
I went to college a long time ago, back before the invention of the 529 College Savings Plan. In fact, I had already been enrolled at Michigan State University for two years before the State of Michigan started offering a prepaid tuition program. 529 Plans didn’t come along until six years after I graduated.
In a previous blog post, I mentioned my college savings plan was an agreement with my parents that I would pay 50% of my college education costs. Any scholarships I received reduced my out-of-pocket costs. Any course grades below a C increased my out-of-pocket costs. So good grades and a summer job were my primary savings tools. And yes, I did access interest-free federal student loans during my college years, but the financial discipline which was imparted to me at a young age allowed me to extinguish that debt within six months after graduation.
Fast forward to today and, according to the Federal Reserve, as a nation there is close to $1.5 trillion of outstanding student loan debt. With 44 million borrowers, that equates to an average student loan balance of $34,000. While everyone agrees it is out of control, how can we stop the cycle?
It starts with discipline. We have talked before about “paying yourself first.” This can be done by contributing to your work retirement plan before you spend money on anything else. It also works to cover future education costs. If you have children, it is likely that at least one will go to college in the future. Starting an education savings plan early will help reduce the stress level you inevitably will have when that day comes. So how do you start?
My wife started 529 Plans for her children when they were very young. She worked in the financial services industry, so she experienced the “pay yourself first” mindset every day. She contributed the same amount every month. When we got married and had two incomes, we increased the monthly amount. And yes, there were times we had to stop contributing so we could pay our bills, but once finances were better, the first thing we did was start the 529 contributions again.
We will have our first high school graduate in a few days. We are busy planning his graduation party and picking classes for his first semester in college. We planned early, we were disciplined, and we knew this day would come.
If you would like help planning for your child’s future education costs, contact Connections Financial Advisors today and schedule a complimentary meeting.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax-free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
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