On 5/29, Take Control of Your Family’s Educational Future (Here’s How!)

The Tuesday after a holiday weekend probably isn’t a great time for a major financial wake-up call, but that’s exactly what I’ve come to offer. Today is 5/29, which is the perfect day to remind everyone that if education is a goal for you or someone you love, a 529 college savings plan should probably be part of your life.

If it hasn’t been a priority for you before now, just ponder the fact that student loan debt increased by $68 billion to hit a whopping $1.38 trillion in 2017.  Maybe you read the controversial WSJ story about the man with $1 million in debt.  Or maybe you’ve talked to millennials about how it’s impacted their ability to buy a home, save for retirement, or start a family. No one wants to imagine their children passing up on life’s milestones because they’re still paying for a fourth edition biology textbook.   

If you’re not exactly sure what a 529 plan is, unfortunately you’re not alone—71% of Americans are right there with you, according to a study by financial services firm Edward Jones. Even though 529 plans can now be used for K-12 expenses (thanks to the Tax Cuts and Jobs Act), 65% of Americans said they were no more likely to invest in a plan today than they were last year.

Why is that? I think lack of awareness is the answer—if more people just knew what 529 plans offered, more people would have one. So, by way of explanation, think of them this way: 529s are basically just IRAs that are earmarked for educational use, that grow tax-free.  Many states give you a tax break for contributing. Money in the plans can be used for tuition and college expenses (including computers), and if your child gets a scholarship and doesn’t need the money, you can pass the money to others in your family or withdraw every penny (with a 10% penalty on growth not used for educational purposes.)

But it’s not just savers that are uninformed.  College graduates don’t know nearly enough about the debt they’ve taken on. Over half didn’t know their future monthly repayments, and 74% didn’t know how long they would be making payments, according to a Prudential Financial study.

Bottom line: The whole picture is scary — and I believe this has lead many of us to think: “I’ll never be able to afford this, so I’m not even going to try to save.” But that’s the wrong approach. Most parents can’t afford to pay for all four years of tuition, nor should we be killing ourselves in order to do it. According to Sallie Mae, the majority of students and parents pay 29% of their tuition from income and savings, as opposed to loans, grants, and scholarships. So why not make 30% your savings goal? If that sounds too challenging or unrealistic for you, shoot for 20% or even 10%. The point is that every dollar you can save is one dollar of debt that your child won’t be saddled with when they graduate. And that’s what this whole conversation is about: 529 plans allow us to give our kids a leg up.

So today, on 5/29, start these conversations with your spouse or your financial planner—anyone who will listen. Just remember that since 529 plans are state-sponsored, they’ll have a different set-up process from other investment accounts, and they will vary by state. Check out the plans offered by your state here, and get going! Then once you’re set up, you can make the whole process painless by setting up recurring contributions that will automatically move money into your 529 plan from your checking account.

For those of you who have used a 529 plan, what do you think? How did your savings help further your family’s educational goals?

With Kathryn Tuggle