By Joe Torsella, State Treasurer of Pennsylvania
October 6, 2020
The year 2020 has brought challenges no one could have ever imagined. Parents have faced an impossible balancing act amid uncertainty in schooling and employment. They have had to make unimaginably difficult choices to keep their family safe.
Each difficult choice a parent makes is weighing on them more than ever before. Unfortunately, these new worries don’t erase the old ones — like the rising cost of higher education.
Even while the world seems uncertain, it’s important to plan for the future. Many 529 college savings plans are ready to help parents meet their education savings goals. When families begin to compare plans, they may discover prepaid tuition plans as a tool they want to explore.
In Pennsylvania, our prepaid tuition plan is the PA 529 Guaranteed Savings Plan (GSP). The PA GSP, like most prepaid tuition plans, offers a lower-risk approach to investing, as returns are based on college tuition inflation rather than market performance. Families can start saving with as little as $10.
Many prepaid tuition plans, including our GSP, have residency requirements, meaning a beneficiary or account owner must be a state resident at the time the account is opened. Growth is tax-free at the state and federal level, and contributions may be deductible on state income taxes, depending on the state in which you live.
When it comes time for a child to embark on their path to higher education — no matter if their journey takes them around the corner to the local community college or across the country to a four-year university — only a small percentage of the funds in prepaid tuition plan will be counted when determining state financial aid eligibility.
Families may save at their choice of different average tuition levels — ranging from community college to differing types of 4-year institutions. In many cases, accounts can also help cover the costs of some room and board, books, supplies, fees or special needs services.
The rising costs of higher education continue to contribute to the astronomical student loan debt our graduates are carrying as they try to navigate entry into the workforce. We know that education beyond high school is almost necessary. After the Great Recession, we saw that 95% of new jobs created required some type of training after high school graduation. A high price tag should not stand in the way of the next generation’s success in the workforce.
Saving early and often for a child’s future with a prepaid plan, or other college savings plan, is a way to help cover future costs and encourage them to follow their dreams. Every dollar saved now means one less dollar borrowed later.
While many of our immediate plans have hit roadblocks this year, the future still lies ahead. It’s important to explore what education savings tool is the best fit for your family — whether it is a prepaid tuition plan or a traditional savings plan. Choosing to invest in our children today by saving even a small amount on a regular basis will ensure they have a brighter future, and brighter days are surely ahead for all of us.
About the author
Joe Torsella is the State Treasurer of Pennsylvania who oversees that state’s $100 billion in state assets. He also administers the state’s 529 College and Career Savings Program, which has been helping families save and pay for higher education for more than 25 years. Torsella and legislative partners spearheaded the country’s first legislated universal, opt-out, at-birth children’s savings program, Keystone Scholars, providing $100 starter deposits for every child born in the Commonwealth of Pennsylvania. The Pennsylvania 529 College and Career Savings Program sponsors three plans – the PA 529 Guaranteed Savings Plan (GSP), the PA 529 Investment Plan (IP), and Keystone Scholars. The guarantee of the PA 529 Guaranteed Savings Plan is an obligation of the GSP Fund, not the Commonwealth of Pennsylvania or any state agency. Before investing in either PA 529 plan, please carefully read that plan’s disclosure statement (available at www.PA529.com or by calling 1-800-440-4000) to learn more about that plan, including investment objectives, risks, fees, and tax implications. Before you invest, consider whether your or the 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 that state’s qualified tuition program.