In recognition of National College Savings Month this September, CREA Foundation is proud to provide scholarships, resources and grants to students residing in affordable housing communities to help them successfully earn a college degree. Through strategic partnerships, CREA Foundation is committed to addressing financial barriers and suppressing racial injustice by creating opportunities for all to further their education, learning and development. CREA Foundation’s philanthropic and purpose-driven efforts strive to support the educational and personal endeavors of historically disadvantaged students and families, close the income gap, and end the poverty cycle. Click here to support this mission!
Saving vs. Borrowing
Saving has many benefits over borrowing when it comes to paying for college, and it is never too early to start! With the expense of college in mind, starting to save early and staying invested means less future debt. Understanding that not every household or individual is in the position to save, any amount of saving has long-term benefits. The following graphics illustrate the potential large sum of out-of-pocket dollars families can save if they start to invest early in college expenses by saving rather than borrowing. Not only are the monthly payments lower when saving, but individuals receive potential earnings with a 529 College Savings Plan and avoid acquiring high total interest payments from student loans.
Helpful Tips: How to Save for College
According to a 2020 CNBC report, Americans have invested close to $400 billion in 529 College Savings Plans. However, COVID-19 and the subsequent financial distress on families have disrupted parent’s continued contributions to these funds. Higher education tuition increases by 3% (on average) every year: When able, it is important to utilize college savings plans that grow tax-free for qualified education expenses by starting early and staying invested. Here are some tips on how to effectively save for college, which will look different across family circumstances.
Federal law authorizes 529 plans, and State agencies sponsor and operate these accounts. One example can be found in North Carolina whose approach is materially consistent with how other States sponsor and operate this federal resource. Here are some of their tips on how to save for higher education:
- Open an education investment account when your child is born
- Make saving a healthy habit (schedule auto-transfers into a college savings fund)
- Working teens can help contribute to college savings efforts
- Take Advanced Placement (AP) classes in high school to earn free college credits
- Apply, apply, apply for scholarships!
Education Savings Accounts Plans
One of the most highly recommended strategies to save for college costs is opening an Education Savings Account. There are multiple types of these accounts, which all maintain unique eligibility requirements and restrictions regarding where investments can be allocated. It is imperative to research your state’s 529 Plans and other Education Savings Account options to make an informed decision for your family situation.
“A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as ‘qualified tuition plans,’ are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.”
There are two types of 529 plans:
- Education Savings Plans let an account owner open an investment account to save for the account beneficiary’s qualified higher education expenses or tuition for elementary or secondary public, private, or religious schools. Learn more about Coverdell ESA here.
- Prepaid Tuition Plans let an account owner purchase units or credits at participating colleges for future tuition for the account beneficiary. Learn more about Prepaid College Plans here.
For Further Information:
- Military Benefit Association – “Saving for College: 529 Plans vs. Coverdell Education Savings Accounts”
- my529 – “College Savings Month”
- The College Investor – “How Much Should You Have In A 529 Plan By Age”
White House Update: New Student Loan Forgiveness Program
As pandemic-related federal student loan support concludes, the Biden Administration and U.S. Department of Education declared an approach to help lower- and middle-class borrowers shift back to a regular payment schedule, involving loan forgiveness up to $20,000. If you are interested in this program, click here to subscribe for further information from the U.S. Department of Education. Upon launch, you will have until December 31, 2023, to apply.
Key points for the three-part Biden-Harris Administration’s Student Debt Relief Plan:
- Final extension of student loan repayment pauses through December 31, 2022
- Targeted debt relief to low- and middle-income families based on Pell Grant status in college, as well as the Public Service Loan Forgiveness (PSLF) program for those employed by non-profits, the military, or federal, state, Tribal or local government
- More manageable student loan system and new income-driven repayment plan for current and future (particularly lower- and middle-income) borrowers
For Further Information:
- The White House – “Fact Sheet: President Biden Announces Student Loan Relief for Borrowers Who Need It Most”
- NPR – “3 things you need to know about Biden’s student loan announcement”
- Saving for College – “What’s the Current State of Student Loan Forgiveness?”
References & Resources
Disclaimer: CREA is not a financial advisor for educational purposes. Consult a professional investment advisor before making any investment decisions.