Preventing Student Loan Debt with a 529 College Savings Plan

While kids associate back to school time with reuniting with friends after the summer break, many parents associate this time with added expenses. New clothes – Do kids really grow that much over summer?School supplies – Have ink cartridges always cost this much? Incidentals like school lunches never seem to end. And what about expenses that come out of nowhere – How can that laptop be outdated already? As your child progresses through school, it’s only natural to be thinking of the next stage of their life. No matter how much money you end up spending on K-12 expenses, it’s minimal compared to the cost of higher education.

The National Center for Education Statistics reports that in the decade between the academic school years 2007-2008 and 2017-2018, prices for undergraduate tuition, fees, room and board increased 31 percent at public schools and 23 percent at private nonprofit schools.

A Vanguard study estimated that attending and graduating from a private school 18 years from now will run roughly $500,000. While college tuition has increased about twice the general inflation rate per year, it’s important to note that public in-state universities cost about one-third of a private institution. However, that expense can still feel overwhelming for a parent.

Student loans can help with higher education expenses, but loans should be a last resort. According to the Wall Street Journal, the average college graduate’s total student loan debt is $34,000 once they accept their diploma. The Reserve Bank of New York reports that America’s overall student loan debt is hovering just over $1.5 trillion.

While these statistics may be daunting, I’m here to tell you that with careful planning and dedication, it’s possible to save a significant amount for a child’s higher education. This is commonly done by setting aside funds in a qualified tuition plan, known as a 529 college savings plan.

529 college plans are state, state agency or educational institution sponsored plans explicitly developed to help individuals save for future education expenses. While most parents use 529 plans for higher education, funds can be used for any K-12 education expenses. Because 529 plans are investment accounts, the money grows tax-deferred and faster than in traditional savings, so the earlier you start saving, the more money you can set aside for your child’s future. Another perk to the 529 college plan is if you use withdrawals for qualified education expenses, earnings in the 529 account are not subject to federal income tax and, in many cases, state income tax. 

Nearly every state has a 529 plan – Wisconsin’s is called Edvest. Just because you live in a state, does not mean you are obligated to use that state’s 529 college plan. You can select an out-of-state plan and then send your child to an in-state school, or you can select Wisconsin’s 529 plan and send your child to an out-of-state school.

With so many options, it’s essential to take time and research which plan would be right for your child. If you decide to open a 529 plan, it’s important to note that since the state and federal laws that affect 529 plans could change, it’s crucial that you understand the tax implications of investing in a 529 plan or consult a financial adviser who can assist you with this task.

While 529 plans are one of the more popular plans to save for a child’s future, there are other options aside from 529 plans to save for your child’s future. Roth IRAs, Coverdell Education Savings Accounts and traditional savings accounts are a few of the other options available.

As much as you want to help your child with higher education expenses, you should never sacrifice saving for your retirement. With the right planning, you can successfully achieve both goals.

Securities offered through Kalos Capital, Inc. and Investment Advisory Services offered through Kalos Management, Inc., both at 11525 Park Woods Circle, Alpharetta, GA 30005, (678) 356-1100.Retirement Income Strategies is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.