KENDALLVILLE — It took just one year of tuition at Trine University to burn through the money Jenna Anderson and her husband had saved for their son in a CollegeChoice 529 savings plan.
Now, she’s wishing they would have saved a little more and invested what they had saved a little sooner.
“We started saving through a regular savings account around 2007, but switched it over to a 529 account in 2013,” Anderson said of the money they put back for her son, RJ, a freshman at Trine University. “By the time he started college this year, we had saved just $9,000. Definitely not enough to go very far in college, especially a private school. We spent half in the first semester on tuition, and will spend the other half for the spring semester.”
When they started, Anderson said she thought the savings account was good enough. She admits she had heard about CollegeChoice 529 plans years ago but it took a while before they decided to switch. Like any parent thinking forward to post-secondary education, the task can be daunting.
“Going into looking at colleges, I knew that the cost was going to be much, much more than it was for me so many years ago, but I admit I wasn’t prepared for how much,” Anderson said. “Looking at what we will owe over the course of a four-year private school education is very intimidating.”
The Andersons are one of hundreds of thousands of families in Indiana utilizing a College 529 savings plan, which in total surpassed $5 billion in total savings this fall, according to the Indiana Treasurer’s Office.
With the cost of college ever-increasing and more awareness about the long-term harm student debt can have on graduates’ financial futures, 529 plans are an easy option available to families to start socking away money for school.
According to the Indiana Commission on Higher Education, the average annual cost to attend public universities in Indiana range from about $18,000 to $23,000 before financial aid.
About 67% of students at Indiana colleges leave school with some type of debt, while the average debt upon graduation from four-year schools is about $27,000.
While many families are making an effort to save for college, the savings generally don’t come close to the cost. According to the state treasurer’s office, the average savings in Indiana 529 accounts is about $13,000.
CollegeChoice 529 plans do give parents a tax-advantaged way of saving, however. Families can make up to $5,000 in contributions and have that amount deducted from their taxable income, creating a saving both on federal and state income tax returns.
Accounts can grow tax-free as long as the money is withdrawn to pay for qualified higher education expenses like tuition, room and board, books, computers and fees.
Indiana taxpayers may also be eligible for an annual state income tax credit of 20% of contributions to their CollegeChoice 529 accounts, worth up to $1,000 each year.
The 529 plans also allow parents to pick investment options, ranging from target funds based on when a child is expected to graduate high school or other more specific funds.
While interest rates on bank savings accounts are sometimes near-zero, depending on the performance of the stock market, invested funds could grow by several percent year-to-year.
Saving $10 per week over 18 years will get you a saving of about $9,400. But that same amount invested for 18 years with average gains can instead turn unto about $15,000.
Although many parents find themselves coming up short of saving enough to pay for a four-year degree, any savings can make a long-term impact for a student compared to loans.
According to the state treasurer’s office, if a student were to borrow the $15,000 that a family might be able to put back from $10 per week investments, that student would not only have to pay back that principal after graduation but also approximately $6,500 in interest over 10 years.
Getting signed up for a CollegeChoice 529 plan is fairly easy. Parents can register at collegechoicedirect.com/home to get an account number, then can set up automatic withdrawals from their paycheck that will fund the account.