As tuitions spike, more Pa. families turn to 529 college savings plans
Ruane and John Lindh are brutally realistic when it comes to paying for college for three kids: It's going to be expensive, and their savings will cover a fraction of the costs, at best.
The Carnegie couple started a 529 college savings plan for each of their children — Hannah, 16; Halle, 14; and Bobby, 12 — about seven years ago.
“We really just started talking about how we were going to prepare for them for school,” Ruane Lindh said. “We went back and forth, but the 529 is the best way.”
A 529 account lets families save money for college by investing in mutual fund plans or using a guaranteed savings option that lets users buy college credits at today's prices to use in the future when tuition will almost certainly be higher.
The newest state treasury numbers show participation in 529 plans in Pennsylvania has increased steadily since 2006:
• The number of accounts rose 33 percent, from 150,137 to 200,359 last year.
• Total assets rose 157 percent to more than $3.6 billion.
• The average account balance rose 45 percent, from about $12,600 to a little more than $18,000.
But over the same period, college tuition has skyrocketed, jumping 61 percent at the University of Pittsburgh, 60 percent on average at private, four-year universities, and 44 percent at state-owned schools, such as Slippery Rock, California and Indiana universities.
“It's the worst feeling ever,” said Ruane Lindh. “You look at it and you think, ‘How am I going to afford all this?' ”
Graduates of Pennsylvania colleges and universities leave school with some of the highest debt in the nation, according to the national Project on Student Debt. The average debt for a 2014 graduate was $33,264 — the third-highest in the country.
At Pitt and Penn State University, the average climbs to more than $36,000, the group found.
“I think there's definitely an increase in the number of people who want to start early and save for education, especially when you hear kids are graduating with $100,000 ... in student debt,” said Timothy Henry, a financial adviser with Ameriprise Financial in Greensburg.
Henry said some of his clients want to save enough to cover 100 percent of their child's education, but the majority want to provide what they can for undergraduate years without jeopardizing their ability to retire.
The Lindhs' goal was to sock away enough to pay for two years of college for each child, but because of when they started their plans, they might not make that goal for their oldest.
They don't save a set amount every month, but if they did it all again, that's something they'd do differently, Ruane Lindh said.
“I do a chunk here and a chunk there and hopefully I'll have enough,” said Lindh, who also worries about her children's future loan burden. “You have to make a good salary to pay that back. That's the scary part for anyone; to be able to write out a check is a lot.”
The Lindhs' savings goals are on par with many families nationally, surveys show.
About one-third of 529 plan holders expect their savings to cover 25 to 50 percent of the cost of college, according to a survey by the College Savings Plans Network. Only 17 percent think their investment will cover 75 to 100 percent of the cost, results show.
That speaks to who is using 529 savings plans, said Young Boozer III, chairman of the College Savings Plans Network and the state treasurer of Alabama.
“The people who are using them are middle-income folks ... who are trying to save as much as they can to offset as much as they can of college expenses,” Boozer said.
The average account balance nationally was $20,934 — just over the average cost to attend a public college or university for a year, he said.
Even that much is beneficial to students who graduate owing $20,000 less in students loans, Boozer said.
Pennsylvania created its 529 account program in 1992, calling it a Tuition Account Program that functioned similar to how the guaranteed saving plan option does now. A 2000 state law added the investment plan option and expanded the items that could be paid for using the accounts.
Money saved in a 529 account can be withdrawn tax-free to pay for tuition, room and board, books and other related expenses. And married couples can deduct up to $28,000 per beneficiary per year from their state taxable income.
Those benefits, along with the stability of the 529s, led Ken and Kelly Patrick of Hempfield to research the plans for their 7-month-old son, Alex, instead of looking to certificates of deposit, savings bonds or a traditional savings account.
“CDs have such horrible interest rates. And it used to be you could purchase savings bonds and they'd double their value in 10 years,” said Ken Patrick, 41, a biology teacher at Adelphoi Village in Latrobe. “The interest rates aren't even that impressive on them anymore.”
Patrick said he and his wife both dealt with hefty student loans, and they want to help their son avoid that. They're still researching plans but are leaning toward Pennsylvania's guaranteed savings option, he said.
“I'm a huge fan of lifelong learning,” Patrick said. “If I can set up an account now that's going to encourage him at a young age to start thinking about college ... I'll do everything I can to encourage that in him.”
Kari Andren is a Tribune-Review staff writer. Reach her at 724-850-2856 or email@example.com.