When Ben DiFilippi graduates from college next month, he's going to be debt-free.
With merit scholarships and the college savings his parents stashed away in 529 plans, DiFilippi and his family have been able to cover the entire price tag for his undergraduate education at Clark University in Worcester, Massachusetts.
"We're going to be celebrating both his academic achievement and our achievement as a family in preparing for the cost of it," said his mother, Patricia Roberts.
Ben and Patricia RobertsPatricia Roberts
Many financial advisors recommend a 529 plan as a way to earmark a savings account specifically for education costs. Yet a new survey shows nearly two-thirds of Americans cannot correctly identify a 529 plan as an education savings tool — and only one-fifth of U.S. parents report they have saved, or are planning to save, for their children's education — or their own — using a 529 plan.
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As total student loan debt in the U.S. has surpassed $1.7 trillion and the average cost of attending a private college jumped to $37,650 for the 2020-21 school year, there seems to be a disconnect for many parents between the cost of higher education and how to pay for it, experts say.
"Some people are reaching the end of their lives still not sure how to pay [student loan debt] back, and … many people are unfamiliar with one of the most effective ways to save," said Roberts, author of "Route 529: A Parent's Guide to Saving for College and Career Training with 529 Plans."
With a 529 savings plan, earnings grow on a tax-advantaged basis, and when you withdraw the money, it is tax-free if the funds are used for qualified education expenses such as tuition, fees, books and room and board. Plus, you often will get a state tax deduction or credit for contributions.
Those aren't the only reasons many parents find a 529 plan a good way to save for college. Reducing the amount of money students will have to borrow to pay for college is a big consideration.
