By Mary Morris
December 18, 2012
Last week, the US Government Accountability Office (GAO) released a report about participation in 529 plans across the country. We appreciate the focus on 529 plans and attempts by the GAO to understand the industry by talking to 529 sponsors and partners. The Report contains some interesting findings and food for thought. But, there also are data points in the Report that merit additional context and attention.
A key point highlighted in the GAO Report focuses on low participation in 529s. We believe it important to focus on the impact, importance and benefit to – and true participation by – American families. The GAO Report found that less than 3% of American families saved in a 529 (or Coverdell) in 2010, this, however, was an extremely broad definition of household. The participation rate increases to 15% when looking at Households with Children under Age 18 according to recent U.S. Census data and a 2012 Financial Research Corp. (FRC) 529 Industry Report. Certainly, 529 sponsors are working to increase participation in their plans, but considering the relative youth of 529 plans generally and challenges to the general economy in recent years, we think there is much to celebrate in the 15% figure.
The Report also focused on household income of 529 participants and found that families with 529 accounts and Coverdell accounts had “much more wealth” than those without such accounts (which may mean these are families who have made saving generally, and specifically for higher education, a priority) but the Report also noted that the median household income of families with a 529 account is $142,400. The FRC Industry Report noted above had a similar finding, with some additional important detail – 35% of accounts are in households with less than $50,000 in income, 57% in households below $150,000 and 81% in households below $250,000. In fact, it is these middle and upper middle income households which struggle to pay for college – they are without the resources to pay for college from current assets and have incomes too high to qualify for much need-based aid, except for loan packages.
529 plans must keep families focused on the importance of higher education and find ways to further educate families about the benefits of 529 plans to help make college more affordable and accessible. To paraphrase a comment posted to a Chronicles of Higher Education article on the GAO Report, shouldn’t we focus more on encouraging families to take advantage of the benefits of 529 plans and less on who isn’t participating. The benefits of utilizing 529 plans are real and substantial and millions of American families are taking advantage of those opportunities. The task of 529 plans across the country is to re-double our efforts to educate families through outreach efforts to increase participation in 529 programs by all families.
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