September is College Savings Month. May 29 is 529 Day.
It’s not an oversight that Congress, which LOVES commemorative days, has not heralded College Borrowing Month or Student Loan Day. This simple example of two students shows why saving for college is always better than borrowing:
● Amy: Beneficiary of college savings and no student loans. Over 18 years, Amy’s family was able to save $100 per month ($21,600 in total contributions) and had an average return of 6% giving her approximately $38,800 to pay her college bills.
● John: No savings, in need of student loans. With no college savings, John had to borrow approximately $38,800 (at 6% interest rate) to pay his college bills. He started paying $430 monthly for 10 years after graduation and will make approximately $51,700 in total principal and interest payments.
● The result: John paid $51,700 more for his degree than Amy. He also used $430 each month for 10 years to make a loan payment rather than investing in a home, retirement, and/or his children’s education.
● The benefit of savings: Families who can save a smaller amount ($100) each month over a longer period (18 years) enable their students to avoid borrowing a larger amount ($38,800) that needs to be paid over a shorter period (10 years).
The numbers and calculations are less important than the point: saving for college will reduce the total cost of education, better position graduates for future financial success, and maybe even help jump-start their retirement accounts.
How to save
Assuming agreement that “Saving a Dollar Today is Better than Borrowing One Tomorrow”®, the question turns to how best to save for college. Since the first programs were launched 29 years ago, 529 Savings and Prepaid Plans have become the go-to vehicles for college savings, and they continue to grow. 529 data guru Paul Curley at ISS Market Research tells us that on June 30, 2025, 17.3 million 529 accounts were valued at $568 billion, up from 16.8 million accounts with $508 billion in assets under management just one year earlier. An excellent reason to celebrate 529 Day each year!
Before we look at 529 programs, it is worth noting that Coverdell Education Savings Accounts may also be a viable alternative for some families saving for college. Both enjoy tax advantages. Coverdell Accounts have not been widely used because they have income restrictions on who can open them, a relatively low maximum annual contribution of $2,000 per beneficiary, and a requirement to use the savings before the beneficiary reaches age 30.
529 accounts have been structured to provide many incentives for families:
1. No income restrictions: Anyone, no matter their income, may own and contribute to a 529.
2. Significant tax benefits: Unlike brokerage or other taxable accounts, neither the interest and gains on the 529 investments nor the withdrawals for Qualified Education Expenses (QEEs) are taxed. QEEs include just about all college expenses, such as tuition, housing, food, books, supplies, computers, etc. In addition to federal tax advantages, many states also offer state tax credits or deductions.
3. Not state specific. Savers may pick any of the more than one hundred 529 Savings Plans for use at schools in any state. Check 529 Prepaid Plans for restrictions, if any, on where those investments may be used and for options if the student decides not to attend a school for which a prepaid investment has been made. Find and compare 529 programs here.
4. Many uses for 529s. In addition to using 529s for college expenses, approved apprenticeship and certificate programs, savers may withdraw up to $10,000 for K-12 tuition and expenses, and/or payments on student loans.
5. Options for leftover savings. If a student does not go to college or money remains after graduation, the account owner has options:
a. Don’t do anything. There is no requirement to close an account after a student completes school.
b. Allow the beneficiary to roll remaining savings into a Roth IRA. Subject to certain restrictions, beneficiaries may roll up to $35,000 into a Roth IRA.
c. Name a new beneficiary. Account owners may easily change beneficiaries, even to themselves.
d. Make a non-qualified withdrawal. The Account Owner may make a withdrawal for non-qualified expenses, incurring a 10% penalty and paying taxes on the earnings.
6. Financial aid friendly: 529 savings have a minimal impact on financial aid eligibility. Money saved in a 529 Plan reduces financial aid eligibility by 5.64% of the amount saved. For example, $10,000 saved in a 529 could reduce financial aid eligibility by $564.
7. Beneficial for estate planning: Account owners, typically parents and grandparents, prefer 529s because they maintain control over how monies are invested but do not include the 529 accounts in their taxable estates.
Saving for college is an important way to minimize college debt, reduce the overall cost of obtaining a degree, and allow recent graduates to save for their future rather than pay for their past.
® – Invite Education LLC
About the author:
John Hupalo is the Founder & CEO of Invite Education