Ah, fall! Crisp air, crunchy leaves, pumpkin everything and our favorite sport at Warren Averett — college football. In the South, the topic of college football is everywhere, and I am always amazed at how quickly we, as a group, dismiss the word “college” in that phrase. As a parent of two high school students, I am all too aware of the word “college” and the expense that it brings. Once upon a time, college was for the elite: the smartest student or the lucky scholarship recipient. Less than 20% of high school graduates completed college in 1940*, but, by 2015, the number of high school graduates who also graduated from college more than doubled**.
It is projected that there will be 55 million job openings through 2020***, with many of them requiring a minimum of a bachelor’s degree. The argument for completing some level of education beyond high school is strong, but the expense is challenging. How are parents (or the students themselves) going to financially prepare for college costs? According to historical data, tuition and fees are increasing at a rate of 6% annually, which is significantly higher than the rate of inflation in the economy.
College Savings 529 Plans offer advantages that other savings plans may not. They are a great way to help plan for the expense of college. Rules and benefits vary by state, but these plans may offer significant tax benefits when used for “qualified education expenses” which include tuition, room and board, books, fees and mandatory supplies. While options vary from state to state, most plans have a large selection of investments. It is important to analyze the potential tax benefits of using your state’s 529 plan and carefully weigh against investment options and fees.
The sooner you start saving, the better. Just as retirement saving is a line item on your budget, college expense saving may need to be as well.