For many families in the United States, the cost of higher education is increasingly out of reach. This was a significant issue in the 2016 presidential race, shining a spotlight on the spiraling cost of student debt. The election may be over, but student debt continues to rise.
The cost of college continues to increase faster than our overall rate of inflation. According to data from the New York Federal Reserve, outstanding student loan balances stood at $1.3 trillion as of December 2016.1 While the largest concentration of student loan debt was reported at $10,000–$25,000 (which accounts for 12.4 million student loan borrowers) more than two million student loan borrowers had student loan debt of more than $100,000.2 Those are some big numbers!
Let’s translate those numbers into what it means for the individuals. Student debt has kept many Millennials from achieving life goals—such as owning a home. For parents with younger children, it’s time to formulate a strategy to help secure your children’s future.
It is important to note that student loans are not bad, they just need to be used wisely and should be combined with a saving strategy! So, whether you are just getting started or are already saving, these five strategies can help with your college savings efforts:
1. Start Early
2. Invest Regularly
3. Ask Friends and Family to Help
4. Educate Yourself on Ways to Save
5. Work with a Financial Advisor
Saving for college is a long-term goal, and it’s never too early to start saving—even before your baby is out of diapers. And, there are many different ways to save. No matter which approach you employ, I encourage all parents to start thinking about this important issue sooner rather than later.
I’d like to focus on the third item in this list—ask friends and family for help. By now, most of us are familiar with the concept of crowdfunding, a form of fundraising that taps a pool of outside investors or donors to help finance a given goal or launch a new product.
The concept of crowdfunding is becoming important to college savings for many—particularly those with a type of savings vehicle called a “529 plan,” named after a section of the Internal Revenue code.
According to the College Savings Foundation’s 2016 Annual State of College Savings survey of parents, the vast majority of parents surveyed (88%) said they plan to help fund their children’s college education.3 Among those who plan to help, 32% said savings is the number one way they plan to pay for college costs.
In some cases, however, parents can only do so much, especially those who are simultaneously trying to save for their retirement.
To that end, an overwhelming majority (90%) of parents polled in the College Savings Foundation survey said that online and other gifting options would make college savings easier.4 Additionally, 41% of survey respondents said 529 gift cards or gift certificates (both general or for a specific college-savings plan) would make college savings easier.5
Many families use 529 plans to help manage and invest their college savings. States, state agencies or educational institutions can sponsor 529 plans, which are considered qualified tuition plans. Parents, grandparents and other family members and even friends can help a designated beneficiary save for college costs.
Money invested in these plans grows free of federal income tax when withdrawn for qualified higher education expenses such as tuition, books, and room and board (when attending at least half time). Depending on where you live, you may be able to take advantage of state tax benefits, too.6
Tax benefits of 529 plans are predicated on meeting certain requirements. Federal income tax, a 10% federal tax penalty and state income tax penalties apply to non-qualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers of assets to a beneficiary two or more generations below the contributor. (See our 529 plan Investor Handbook for complete information.)
Spryng into Action
Designed exclusively for Franklin Templeton 529 account owners,7 Spryng is a personal crowdfunding tool designed to help meet the increasing cost of college (and certain trade schools)! It takes just a few minutes to set up a Spryng account and share with friends and family.
Spryng allows users to easily create an online profile for a child or grandchild, share his or her profile with friends and family, and encourage contributions directly into the beneficiary’s 529 plan. You can learn more about Spryng at www.franklinspryng.com.
Planning for any financial goal—whether it’s for college, a home or retirement—can seem overwhelming. Employing creative strategies and breaking it down into a series of small contributions can really add up to a more secure future over time—for you and your children. I encourage you to speak with an advisor about the best approach for your particular situation.
Want More Information and Strategies?
Learn more about Franklin Templeton’s Spryng Crowdfunding tool.
Learn about the “$1 Solution,” an answer to the conundrum faced by families caught between needing money for both retirement and college. It can give information that may help you determine how to allocate funds, while also boosting college savings by $1 per day.
Whether you are just getting started or have been saving for years, watch our short video, “5 Strategies of Successful College Savers,” to see more strategies that can help in the quest.
Learn about 529 College Savings Plans at Franklin Templeton and talk to an advisor for savings ideas and strategies that are best for you and your family.
What Are the Risks?
All investments involve risks, including potential loss of principal.
Investors should carefully consider college savings plan investment goals, risks, charges and expenses before investing. To obtain a disclosure document, which contains this and other information, talk to your financial advisor or call Franklin Templeton Distributors, Inc., the manager and underwriter for a 529 plan at (800) DIAL BEN®/(800) 342-5236 or visit franklintempleton.com. You should read the disclosure document carefully before investing and consider whether your, or the beneficiary’s, home state offers any state tax or other benefits that are only available for investments in its qualified tuition program.
1. Source: New York Federal Reserve Quarterly Report on Household Debt and Credit, February 2017.
3. Source: College Savings Foundation’s 10th Annual State of College Savings Survey, August 2016.
6. It’s important to remember that, as with any investment, principal value may be lost, and investing in the plan does not guarantee admission to college or sufficient funds for college. There is no federal or state guarantee of investments in the plan.
7. Offered and administered by the New Jersey Higher Education Student Assistance Authority (HESAA); managed and distributed by Franklin Templeton Distributors, Inc. an affiliate of Franklin Resources, Inc., which operates as Franklin Templeton Investments. No federal or state guarantee. Principal value may be lost and investing in the plan does not guarantee admission to college or sufficient funds for college. Please refer to the Investor Handbook for more complete information.