March 16, 2016
In case you haven’t tuned in to a presidential debate in the last six months, here’s a news flash: People are increasingly alarmed about the rising cost of higher education in America. But hundreds of thousands of parents are doing something about it. In fact, 400,000 Americans opened new college savings accounts in the last year.
That’s one of the findings in a new report from the College Savings Plans Network. In December 2015, the total number of 529 college savings plans in America reached 12.5 million, up from 12.1 million the year before.
The total amount invested in these plans rose as well, hitting $253 billion in 2015. That’s up $5.3 billion from the year earlier, and it represents an increase of more than $100 billion compared to a decade ago.
Young Boozer, Chair of the College Savings Plans Network and Alabama State Treasurer, says that despite market turbulence in the last year, the increases in both the total number and amount invested in 529 accounts are good signs.
“I think people would be surprised at how much people have saved to date in this program,” Boozer says. “But this is a growing program, and I expect it to grow every year.”
The increase in savings plans and investments isn’t too surprising when you consider the crippling (and rising) cost of education. The CSPN report finds that the cost of college tuition will likely increase about 8% each year, meaning the cost of college roughly doubles every nine years. MONEY calculated that four years of tuition at a public college could cost $100,000 (in today’s dollars) 18 years from now.
Some speculate that saving for college doesn’t pay off, but they likely haven’t considered that saving for college now saves on costly student loan interest rates in the future. For example, every $100 you save for college today can reduce student bills after graduation by $240.
Investing in a 529 also allows you to save for school tax-free, as long as the money is used for higher-education expenses, which include things like computers and other tech for students.
Previous research indicates that only one in four parents saving for college puts money in a 529 account. If you’re not already invested in a 529 and have a child who plans on attending college, Boozer says it’s never too late to start.
“Saving for college through the vehicle of a 529 plan is the best way to save for college period, end of sentence,” he says. “There is nothing better.”