Parents across America are turning away from debt while beefing up college savings accounts like never before.
As the cost of higher education continues to climb, more parents are saying “no thanks” to student loans, credit cards and other forms of debt to pay for college, according to a new survey by the College Savings Foundation.
Saving for college has moved higher up the priority list, according to the survey conducted by the Washington, D.C.-based organization that promotes 529 college savings plans.
A whopping 71% of parents have saved more than $5,000 this year, up from just 47% last year. More than half — 55% — have banked more than $10,000 (up from 32% last year), and 36% have amassed more than $25,000, up from 20% per child last year.
For the first time in the survey’s 18-year history, more than half of all parents said they are saving in tax-advantaged 529 college savings funds, making recurring monthly or quarterly contributions.
“We are excited to see more families engage in proactive saving, and recognizing the many benefits of using 529s for this purpose, as the way to prepare their children for both traditional college and career and technical schools,” said Chris McGee, chair of CSF.
The average cost of college has more than doubled in the 21st century, and now stands at $38,270 per student per year, including books, supplies and living expenses, according to Education Data Initiative.
As the cost of higher education has soared, families have adapted in a number of ways, including students living at home while attending college classes; enrolling in technical, vocational or trade schools instead of four-year colleges; and attending a community college for the first two years before transferring to a four-year college.
A 529 is a tax-advantaged savings plan that was designed to help families pay for college expenses. Money saved in such plans is allowed to grow federal tax-free, allowing for more of a family’s savings to be used for college and less of it going to taxes.
529 plans are named after Section 529 of the Internal Revenue Code, which was enacted by Congress when the plans were created in 1996. As of June 2023, there was $450.5 billion saved in such plans nationwide, with an average balance of $27,741, according to Education Data Initiative.
Pennsylvania is one of more than 30 states that offer a state income tax deduction or credit for 529 contributions and gifts. Pennsylvania allows a tax deduction for up to $30,000 in contributions per beneficiary, and the contributions can be made to any state 529 plan, not just Pennsylvania’s.
The College Savings Foundation survey of parents was conducted with more than 1,000 parents across the country via Survey Monkey.
One third of all parents who responded to the survey said that 529 plans are their primary savings vehicle for higher education; followed by 20% who use a CD or regular bank savings; and 14% who use mutual funds, stocks and bonds.
Currently, 42.8 million borrowers owe a total of $1.6 trillion in federal student loan debt. The average federal and private student loan balance is $40,681, according to Education Data Initiative.
First Published: September 7, 2024, 9:30 a.m.
Updated: September 7, 2024, 4:56 p.m.
