MINNEAPOLIS (WCCO) – During last week’s State of the Union, President Obama proposed a plan to scale back the tax benefits of the 529 college savings plan. A few days later, he dropped that proposal after politicians from both parties argued it would hurt the middle class.
In Minnesota, the Office of Higher Education estimates there are 60,000 529 accounts spread out over 30,000 families. Across the country, a study from the Government Accountability Office found only three percent of families utilize a 529.
So, how do families save for college? Good Question.
According to a 2014 survey from Sallie Mae, only 51 percent of families put away money for higher education. Of those that do, the average starting age is 6 years old.
“Roughly one third comes from parents themselves,” said Ginny Dodds, manager of state financial aid programs for the Minnesota Office of Higher Education. “That isn’t parent borrowing, that’s through their current income or some savings they’ve had.”
According to the MN Office of Higher Education, 35 percent of college money comes from parents, 21 percent from student loans, 18 percent from grants and scholarships, 15 percent from parents’ borrowing and 10 percent from the students.
Among the savers, the average amount saved is just over $15,000. For families with teenagers, the average amount is higher: $21,416. For families with children under age 7: $10,282.
Most of that money goes into a general savings account, followed by 529s, checking accounts, retirement funds, savings bonds, prepaid college plans and juvenile life insurance that can be used to pay for college.
Higher income families tend to save more. Almost three quarters of high-income families are saving for college, compared with half of middle-income families and 34 percent of low-income families.
When it comes to 529 account holders, different organizations find different income groups. The GAO finds more than half of 529 account holders make $150,000 per year. But, nonprofit College Savings Foundation says only 30 percent of 529 account holders make that much.
“You put in what you can afford,” said Max Baldwin, a Minneapolis father of two. “You have to make it work for your budget and hope, by that time, it’s enough to at least get her a head start.”