Looking at the tuition and fees page on university websites can be enough to make your jaw drop. However (thankfully), few of us pay the full sticker price for a degree. Between loans, scholarships, and financial aid, there’s a number of options to help make the price tag of a higher education a bit more manageable.
If you’ve opened a state-sponsored, tax-advantaged 529 college savings plan, you’re already off to a great start. But how does your 529 plan factor into your larger strategy to pay for your child’s education? And how much have you discussed with him or her?
How America Pays for College
Just under 37% of America’s college savings are held in 529 accounts, even though parents who take advantage of these investment vehicles can amass higher average amounts than the majority who stash cash in savings and checking accounts.1
Source: Sallie Mae, “How America Pays for College 2020,” 2020.
A growing number of parents, 38% in 2019, believe their children should be taking some responsibility in paying for their college education.2 Has your family discussed expectations and plans surrounding paying for college?
Most parents consider minimizing college costs to be important to their families. And 83% of parents paid a portion of the cost of their child’s college education out of their own pocket.1 In 2020, parents saved an average of $25,664 for this purpose.3 In addition to the average parental savings, most expect the cost of college to be a burden shared between parents and student.
On average, parents’ income and savings contribute about 44% of tuition per year.1 The remainder is funded through a combination of student income, scholarships, grants, federal student aid, loans, and gifts from family. Even though many families are saving for college, 65% of families who do borrow, say that was always part of their plan.1
Relaying Expectations to Children
When it comes to paying for college, closing the parent-child communication gap is important. In order to make the overwhelming task more manageable, it is best to create a plan and be transparent with your child about that plan so that you can work together.
The first step, which should be ongoing throughout your child’s primary and high school education, is to consult your financial professional.
If you’re using a 529 plan, you are already taking advantage of a tool that may enable you to save more than the average parent who is using a savings or checking account. Your financial professional can serve as a resource for maximizing the potential of your child’s 529 plan within your individual family and financial situation.
The second step is to discuss who is paying for tuition and fees with your child before they apply for college. Have you explained what a 529 is? Do you intend for her to apply for grants and scholarships? Have you explained to him the benefits of attending school in-state? Is she aware of how being a resident assistant could help make college more affordable?
Consider setting your child up with a solid foundation to finance his or her future with a 529 plan. Then help build on that foundation by having honest, open conversations.
On Target to Meet Your Goals?
Even if your goals are appropriate given your family’s circumstances, what about your savings rate? Do you think that you’ll achieve your goal? Talk with your financial professional, and check out the College Savings Planner calculator at hartfordfunds.com/529calculator. Simply plug in a few numbers to find out if you’re on track to save enough.
What Is a 529 Plan?
Talk to your financial professional about how your family plans to save for college.
1 Sallie Mae, “How America Pays for College 2020,” 2020
2 Bloomberg, “American Parents Increasingly Expect Kids to Help Pay for College,” 2019
3 Saving for College, “Average 529 plan balance: How do you compare?,” 2020
Before investing, an investor should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 plan.
For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. Hartford Funds Distributors, LLC serves as distributor and underwriter for some 529 plans.
All information provided is for informational and educational purposes only and is not intended to provide investment, tax, accounting or legal advice. As with all matters of an investment, tax, or legal nature, you and your clients should consult with a qualified tax or legal professional regarding your or your client’s specific legal or tax situation, as applicable. The preceding is not intended to be a recommendation or advice.
“The Hartford” is The Hartford Financial Services Group, Inc. and its subsidiaries.
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