Are 529 Plans Still a Good Plan?
If you are a parent who has diligently socked away funds in a 529 Plan for your children’s college education, you probably lost some money, then maybe gained some back in recent years. Seeing your kids’ nest egg going up and down is scary, no doubt about it.
When the panic starts to set in, some of you are probably thinking about calling it quits on your college savings. Before you pull the plug, here are some tips for recouping your losses and keeping the college plans afloat.
1. Do the interest rate math.
If your child is still in preschool, you really don’t have anything to worry about. With an average of 10 percent returns, your fund will double in value in 10 years. But even if you don’t have 10 years, you can probably recoup your losses within six years. So even if your child is 12 or 13, you still have time.
2. Consider a more conservative approach.
If your kid is a teenager, you may want to switch your fund to a more conservative plan of attack. One option would be to take out a year or two of college costs and move them to a low-risk money market account. Leave the rest in an age-adjusted portfolio, which should local in the gains for the last two or three years of school. Most 529 Plans offer these options.
3. Fill out the FAFSA.
Even if you weren’t planning to apply for financial aid, fill out the FAFSA anyway. (Be sure to check out our weekly workshop series on the FAFSA.) Not only does it give you access to federal student loans, but it also opens up things like the Pell Grant, federal work-study and even state assistance.
4. Increase your search for scholarships.
Sit down with your child and spend an hour or two every week looking for and applying for scholarships. Check our weekly list of scholarship announcements and run a search on one of the web’s free scholarship search engines.
5. Weigh the option of taking out student loans.
If your child is about to start school, it might be worth it to consider taking out federal student loans for the first year (or two) while your fund recoups its value. You might even make back enough to pay off the loan before you (if it’s a PLUS Loan) or your child (if it’s a Stafford Loan) has to start repayments. If you have multiple children, you can also transfer your 529 Plan into a younger sibling’s name.
6. Consider a less expensive school.
An in-state public university is less costly than an out-of-state one, and far less expensive than a private institution. Go ahead and encourage your child to apply to the school of his or her dreams. Some private schools have amazing tuition benefits, including the Ivy Leagues. But you may find that in-state schools offer sweeter financial aid incentives.
7. Encourage your child to take AP courses in high school.
By taking AP courses, your child may be able to enter school with a year or more worth of college credit. What a great way to cut costs!
How are your 529 Plans weathering the financial storm?