A college education is increasingly necessary for success in today’s economy. It’s also increasingly expensive.
Americans with a college degree earn, on average, US $1 million more over the course of their lives than those without one. At the same time, the cost to attend a four-year school has been climbing 2 percent to 3 percent a year above the rate of inflation.
Unfortunately, American families are not saving enough to cover these rising costs. More than half have no college savings at all. Those that do typically don’t set aside nearly enough to pay for even one child to attend college for one year.
A few decades ago Michigan tried to change this by helping state residents save for college. This eventually morphed into the 529 plan. Yet after more than 20 years, only 2.5 percent of households have one.
Part of the failure is a lack of communication, which is why most states celebrate “529 Day” on May 29 to try to raise awareness about this college savings option. The real reason so few families use them, however, is that 529s don’t actually make college more affordable.
The College Affordability Crisis
The rising cost of a college education — coupled with the lack of adequate savings — means that students are graduating with a great deal of debt.
Total student debt rose to a record $1.44 trillion in March, about $33,000 per borrower, more than double the level in 2008.
This has both personal and economy-wide consequences, from credit-ruining defaults and significant financial stress to impairing the ability to save enough to buy a home or retire. Money spent repaying these loans means less consumer spending, thus slowing economic growth.
529s to the Rescue?
Enter the 529. The …read more