Now's the time to save

Parents should start squirreling away for college as soon as their child is born — or even before

January 03, 2012|By Joan Marshall

Education beyond high school is a key to success later in life. According to the U.S. Department of Labor, 62 percent of all U.S. jobs now require a minimum of two-year or four-year degrees or special post-secondary training. That number is expected to increase to 75 percent by 2020.

Unfortunately, at the same time that some form of higher education is becoming more important, it's also becoming increasingly more expensive. The College Board calculates that college costs have risen faster than the rates of inflation over this previous academic year. In fact, the average cost for tuition and fees at four-year public institutions has increased nearly 51 percent over the last 10 years, after adjusting for inflation.

While the statistics may be daunting, there is a simple way to make higher education more accessible and affordable: Start saving even a small amount as soon as possible. Often we see parents worrying about their children's academic preparation for college, but financial preparation is equally important. In fact, according to a recent study in the Journal of Children and Poverty, researchers at the Center for Social Development (CSD) at Washington University in St. Louis found that children with a savings account in their name were approximately six times more likely to attend college than those with no account. The amount saved was not important — only that they had some form of savings that were dedicated to higher education.

The sooner a family starts to save for higher education, the more affordable it will be. However, many families think they don't need to prepare for higher education expenses when their child is an infant or toddler, often putting off the task until their child is in high school. State-sponsored and tax-advantaged college savings plans, called 529 plans after section 529 of the Internal Revenue Code, allow families to start saving from the time their child is born. In fact, saving for higher education can start in a 529 savings plan as soon as a couple begins to think about starting a family if the parent enrolls as the account holder and names himself or herself as beneficiary. Prospective grandparents can even open accounts the same way, as can any relative or family friend.

The more time an investment for higher education has to grow, the more valuable it can be. And those investments do not need to be designated for four-year degrees only. 529 savings plans can also be used for a two-year degree, eligible technical or trade training, room and board, books or other qualified expenses. 529 plans help families finance all forms of higher education and training throughout the country. Maryland’s 529 plans can be used toward nearly any accredited college nationwide, public or private, two-year or four-year, and at U.S. schools that have campuses outside the country.

People often fear making decisions and investments they can't reverse down the road, but 529 plans offer more flexibility than many realize. For example, if a family starts a plan for a child who decides not to pursue higher education, the money can easily be transferred to a different beneficiary — another child or even the parents — for qualified advanced education and training. Or the family can simply take the money out of the plan (subject to certain fees, taxes, and a 10 percent federal penalty on the earnings portion of the withdrawal).

529 plans are also geographically mobile, so if a family relocates, they can continue in the plan they chose originally or roll over once a year into another state's plan if they prefer, subject to specific plan provisions. The College Savings Plans Network's website,, offers noncommercial information that allows families to research each state's plans to select the best one for their needs.

Despite the rising costs, a college degree can make a significant difference in your child's future. While the current national unemployment rate for high school graduates is 9.7 percent, the rate for college graduates is 4.2 percent. Also, college graduates can expect to earn on average 66 percent more over 40 years than those with only a high school degree.

Whatever the individual situation, families should never delay starting to save because they're worried about something occurring in the future or can only make a small contribution. Start now. Save what you can afford. Adjust as you go along. The costs and importance of higher education will only continue to rise — but with smart planning and early savings, higher education and the benefits it brings can be a reality for all families, not just some.

Joan Marshall is executive director of the College Savings Plan of Maryland and chairwoman of the College Savings Plans Network for 2010-11.

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