By Sheila Salehian
Senior Deputy Treasurer, Office of
Nevada State Treasurer
March 3, 2014
Contributing to a prepaid tuition plan and a traditional 529 college savings plan simultaneously….really?
If you’re like most parents, the thought of paying for your children’s college education sends you to the mall shopping for gourmet chocolates or other ‘comfort food’. You’re not alone. According to a recent survey, only 50% of families with children under the age of 18 have actually started to save for their children’s higher education needs.* However, these families have realized that even if they cannot save for the entirety of their child’s college education cost, they are still better off borrowing less… essentially ‘paying themselves’ with tax free interest earnings when paying for qualified higher education expenses. Paying significantly more in the future for what you can’t afford to pay for today is a scary feeling.
Don’t get me wrong. This article is not about denigrating the value of student loans or criticizing those who rely on them for their educational needs. They play an important role in creating access to higher education and without them, many young adults would not be able to attend college. I just think it is important to emphasize that after researching the benefits and merits of 529 college savings vehicles such as a prepaid tuition contract, many parents have realize these programs are investments that come with both financial and intrinsic benefits. In this particular type of 529 program, parents can take comfort in knowing that investment decisions are being handled by professionals, and that future tuition increases do not create the stress that has them ’fleeing to their chocolate comfort foods. Taking actionable steps to control what seems like never-ending tuition increases is really a powerful feeling. Need more motivation? I suggest you read on for more college savings tips.
According to a recent survey done for the Institute for College Access & Success, the average debt load for the class of 2012 was $29,400.* According to the Consumer Financial Protection Bureau (CFPB), student loan totals in 2013 are approaching 1.2 trillion dollars!** The CFPB also reported that a whopping seven million borrowers are in default on their loans. That is a frightening statistic, when you think about the fact that many people are furthering their education in an effort to find financial security.
What can you do? Start a Prepaid Tuition account and compliment it with a traditional 529 College Savings account. How? Find money in your budget to put away a little every month to pay towards your child’s future. Can you save money by taking your lunch twice a week, skipping designer coffee and turning family entertainment night into family game night at home? Could that $200 per month, put into a traditional 529 account benefit your child in the future?
If you save $200 per month for 10 years at 6.8% interest, you’ll accumulate approximately $34,400! Many states offer dollar-for-dollar matching grants for traditional 529 accounts. In addition, some states, such as Nevada, you are allowed to open an account for as little as $15. Research your state’s 529 college savings plans at www.cspn.org. You may even benefit from a state income tax deduction or tax credit for contributions to the state’s 529 college savings plan. That’s like getting a discount on tuition!
How do use both programs together? It’s simple! Take the prepaid tuition program and use it towards your college tuition. Take the traditional 529 savings plan money and use it toward academic fees, books and towards qualified room and board expenses. Together, these plans will lower the amount of scholarships or loans your child needs to complete his or her higher education dreams, helping to prepare them for success in the 21st Century economy.
*How America Saves For College 2013”, Sallie Mae’s National Study of Parents with Children under Age 18 Conducted by Ipsos Public Affairs.
** A closer look at the trillion.
About the Author:
Sheila Salehian is a senior deputy treasurer for the State of Nevada, which offers a 529 prepaid tuition program and 4 other direct sold and advisor sold 529 college savings plans. Sheila is the secretary of the College Savings Board of Nevada and oversees the Nevada Prepaid Tuition program among other duties. Prior to joining the treasurer’s office, she was an executive for a Fortune 100 Financial Services organization providing expertise and support for a wide array of financial products and services.