Graduation season. Whether high school or college, this life milestone is filled with promise for a bright and prosperous future. However, with 69% of college students graduating with an average debt of $29,900, and 14% of their parents carrying an average of $37,200 in federal parent PLUS loans, for many families the promise is clouded by debt that can put both the graduate and their parents, who are approaching retirement, at significant financial risk.
The Rising Cost of College
From 2012 to 2021, student loan debt grew 70% to $1.7 billion, according to Federal Reserve estimates. At the same time, the average cost of attending a private college grew 17%. Despite these increases, 10 years after we launched the annual Edward Jones 529 survey,* nearly two-thirds of Americans still don’t know the value of tax-advantaged 529 education savings plans. In fact, only one-fifth of parents in the U.S. report that they have saved or are planning to save for theirs or their children’s education using a 529 plan.
Confusion and Misinformation
As 529 plans have evolved over the past 10 years, more myths and misunderstandings have surfaced about their value. For example, according to our survey, 14% of respondents thought they’d be penalized on unused funds if their child wound up not going to college. Seven percent of survey respondents believed they would lose all they saved if their child qualified for a full-ride scholarship. Other barriers to saving for their children’s education included paying off their own student loans, the fear of being penalized on unused funds if a child doesn’t go to college, and the feeling that they don’t make enough money to open a 529 account.
Clearly, there is a disconnect between increasing student debt, rising college tuition and awareness of strategies available to save for education.
We know that education is among the biggest contributors to earnings potential. It can lift families and communities out of poverty, and it is a cornerstone for financial security.
Despite the perceived barriers, saving for education remains a top three financial priority for many Americans. However, 67% of survey respondents said they were not aware of the features and potential tax benefits of 529 plans and 65% didn’t know about the possible uses of 529 funds beyond paying for college tuition.
Graduation season is the perfect time to talk with clients about education goals for their children, grandchildren, or themselves. We know that education is among the biggest contributors to earnings potential. It can lift families and communities out of poverty, and it is a cornerstone for financial security. I don’t know a client that doesn’t want this kind of security for themselves, their children, or grandchildren.
A practical tool to help teach clients about financing education is the Edward Jones Financial Fitness Paying for College module. It provides a solid overview and includes calculators to help clients understand expenses to consider and establish an education savings goal.
Your commitment to raising awareness about the advantages and flexibility of 529 plans will help raise up communities as families across the country no longer feel like saving for- and pursuing- education is an out-of-reach goal.
*A Look at Student Loan Debt Statistic for 2021
This survey was conducted by global data intelligence company Morning Consult among a national sample of 2,220 adults from 18 to 65+.
*This year’s awareness level is “down from the firm’s 2012 study,” conducted by Opinion Research Corporation, “where awareness stood at 37%.”
Withdrawals used for expenses other than qualified education expenses may be subject to federal and state taxes, plus a 10% penalty. Under federal tax law, 529 Plans can be used to pay for up to $10,000 of tuition expenses per year, per beneficiary, in connection with enrollment at an elementary or secondary school (public, private or religious). Before using funds for elementary and/or secondary education expenses, please consult with the plan sponsor and/or a qualified tax advisor to avoid incurring potential state tax consequences and/or penalties. Tax issues for 529 plans can be complex. Please consult your tax advisor about your situation.