As Education Expenses Continue to Climb, Are You Saving Now or Borrowing Later?

May 29, 2020

By Debbie Placke, Vice President, Manager Financial Planning Strategies and Marketing

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This spring and summer the whole world is living through something that has never been experienced in our lifetimes. With the COVID-19 pandemic at its peak and stay-at-home orders in place for most of America causing businesses to close, many people are struggling to keep their heads above water.

In these challenging times, what is happening to your financial goals? If you are looking forward to retirement, your number one goal is likely your retirement spending need. Most Americans are familiar with retirement savings options and have started saving for retirement either through an employer retirement plan or Individual Retirement Account (IRA). That’s great, but is it enough?

There are many other expenses that affect your retirement plan that are often forgotten and could cause you the anxieties of having to dip into your retirement savings or borrow money to fund the goals. One important goal, that many times gets lost, is an education savings plan for children or grandchildren. The lack of planning for this goal has resulted in a student loan debt crisis in the U.S.

The cost of a college education can be overwhelming.

Considering the 2019-2020 school year, the national average yearly cost for college education including tuition, fees, room, and board was $30,500 (varying widely by type of institution, and in-state vs. out-of-state tuition costs). This equates to an average total price of $122,000 for a four-year degree. Every year these costs continue to increase. When looking at the increases over a long period of time, the cost to attend college has gone up almost eight times faster than wages. Using a 6% inflation rate, the total average cost for a four-year degree in 18 years could be more than $350,000 (EducationData.Org)

Statistics show that, in 2020, student loan debt has risen to almost $1.6 trillion, surpassing credit card and auto loan debt, and second only to mortgage debt. The average college student graduates with more than $30,000 in student loan debt with an average monthly payment of almost $400.[1] As “unique” graduation events are happening this year, graduates are entering a very difficult economic challenge. Being strapped with large student loan debt amounts and entering into the highest unemployment rate since the Great Depression could leave parents and graduates wishing they had done better planning.

May 29 (5/29) is a special day on the calendar that is typically recognized as National 529 Savings Plan Day. But even if you weren’t aware of that particular day, any time is a good time for parents and grandparents to consider opening or funding a 529 education savings plan to help pay for college expenses. A tax-advantaged 529 education savings plan can help to accumulate a nest egg to fund future education costs and could offer more growth since the earnings and distributions are federally tax-free as long as distributions are used for qualified education expenses. Depending on your state of residence and the 529 education savings plan you decided to fund, these plans may also offer state tax deductions or credits.

Not only is a good education for your child important in today’s world, saving ahead to pay for these expenses may be more so. Don’t leave yourself vulnerable by borrowing or scrambling to pay for education costs when they are upon you. Start investing today into something that can grow into a beautiful future. Talk to your Benjamin F. Edwards financial advisor about your options for saving for this very important goal and open a 529 education savings plan today for the ones you love.

[1] Source: Forbes – Student Loan Debt Statistics In 2020: A Record $1.6 Trillion

Benjamin F. Edwards & Co. does not provide tax advice, therefore it is also important to consult with your tax professional for additional guidance tailored to your specific situation.