WASHINGTON — Having a college savings account can drastically improve the odds of a child going to college.
When comparing two kids from identical family backgrounds, Jacqueline T. Williams, director of the college savings initiative at the New America Foundation, a nonprofit and nonpartisan public policy organization, said children with college funds are four times more likely to enroll in post-secondary education than those whose families did not set aside money for school. The probability is further increased, to seven times, when college savings accounts are in students’ names.
“That’s a pretty compelling piece of evidence,” Williams said at a House discussion on saving for college Thursday.
While most parents want their kids to go to college, only 70 percent of high school graduates last year eventually ended up enrolled in college, according to the latest numbers by the Bureau of Labor Statistics.
“The difference often is that the children who end up going to college, their parents have a plan for getting them there,” she said.
Williams and Joan Marshall, executive director of College Savings Plans of Maryland, discussed the benefits of states’ offerings of college savings plans. Americans have invested $134 billion in 11 million to 12 million of these tax-advantaged accounts, named 529 plans after the respective section of the Internal Revenue Service code.
In order to increase access to college, Marshall emphasized that low- and middle-income families should open 529 accounts. Marshall dispelled myths about 529 in order to make families more comfortable with investing in these savings accounts.
Myth: A state 529 savings plan can only be used for colleges within that state.
What Marshall says: 529 plans can be used at any accredited college that is capable of receiving federal financial aid.
Myth: 529s can only be used at four-year colleges.
What Marshall says: These saving plans can be used at four-year colleges as well as trade and technical schools, community colleges and graduate schools.
Myth: 529s can only be opened for young children.
What Marshall says: Even though states target their marketing efforts at parents of young children, these plans can be used on students of all ages, including for workforce reeducation.
Myth: Funds in a 529 will be wasted if the designated recipient doesn’t attend college.
What Marshall says: Funds in a 529 don’t expire, so it can wait if a student delays college matriculation. In addition, the beneficiary of a 529 can be changed to other relatives who plan to attend college. If a family decides to withdraw funds from the 529, they lose a penalty of 10 percent of the earnings, not the principal.