By Jonathan Hughes, Associate Director of College Planning and Content Creation, Massachusetts Educational Financing Authority

June 25, 2024

If there is one pernicious myth that I could stomp out of existence, it would be this one: “I can’t save any money for college because the financial aid office will see it, and then I won’t receive any financial aid.” Though this is a common belief among families with college-bound students, it’s not true. Let me explain.

Financial aid is awarded on two bases: merit and financial need. When you hear about academic, artistic, or athletic scholarships, these are examples of merit-based aid granted to recognize student achievement. In most cases, family finances are not considered when awarding merit-based aid.

Most financial aid is need-based. When applying for financial aid, families are asked to submit financial aid applications, including the FAFSA^®. Based on the information reported, including income, assets, taxes paid, and family size, students receive a Student Aid Index (SAI). This formula-calculated figure is intended to represent a family’s financial strength and ability to pay for college. A low SAI means more eligibility for financial aid. Most people assume that saving for college will result in a high SAI and, therefore, less financial aid eligibility.

What most people need to know is that most of the weight in the SAI calculation is given to income, not assets. In fact, the SAI formula used by every college and university only takes into account, at most, 5.6% of parent total assets, which include college savings accounts. This means if a family saved, for example, $50,000 for college, the SAI formula would only include $2,800 of that in the student’s SAI. So, the impact of saving for college on financial aid is minimal, to say the least. And remember, if a family has saved $50,000 for college costs, that means they’ll have $50,000 to use for the college bill that they won’t need to borrow and pay back later with interest.

College savings accounts started by grandparents have even less effect on financial aid because they’re usually not counted at all. In the past, grandparent contributions from a college savings account toward a college bill counted as student income on the FAFSA, which had a detrimental effect on that student’s financial aid eligibility in later years. That treatment has been changed. Now, college savings accounts owned by grandparents (as well as aunts and uncles) and distributions from those accounts are not asked for anywhere on the FAFSA. The CSS Profile, a financial aid application used by roughly 200 colleges across the country, does ask for information about relatives who plan to provide funds to help pay for college expenses, but it’s up to each college whether or not that information is even considered when awarding financial aid.

Over the years, I’ve spoken with many families who are very concerned about the impact that saving for college will have on their child’s financial aid. But their minds are put at ease once I explain how the SAI formula works. In all my years working to guide parents through college planning, I’ve never spoken to one parent who has regretted saving. In fact, the most common sentiment I hear is, “I wish I had done more.” 

Our message to families should be one of encouragement and education, letting them know that if they haven’t started saving for college, they should begin today. 

About the author:

Jonathan has worked at Massachusetts Educational Financing Authority (MEFA) for 20 years, helping families in Massachusetts prepare for college. As Associate Director of College Planning and Content Creation, he provides guidance on planning, saving, and paying for college to students and their families and serves as host of the MEFA Podcast.

By Alyson Luszcz and John Mitchell, Co-Chairs, CSPN Data, Operations, and Technology Committee

Every year, a big group from our workplace (or office) gathers for a summertime outing at a Chicago White Sox baseball game. Some of the colleagues who join are baseball fanatics and others could not name one player on the team. Invariably, at least someone is attending the first baseball game in their life. As we talk over beer and peanuts, some colleagues admit to feeling sheepish about how little they know about baseball. As devoted baseball fans, we always tell them there’s nothing to be shy about and remind them that even the most passionate fan has many things left to learn about the game.

As it turns out, we see similar a similar phenomenon among those saving – and not saving – in 529 plans.

Across the broad American population, approximately 10% of households are estimated to be saving in a 529 plan.[1] Interestingly, an additional 23% of the population is estimated to be saving for college in other vehicles such as checking accounts and other tax-preferred accounts.

Why are so many families saving for college in something other than a 529 plan? In a 2022 survey commissioned by the College Savings Plan Network (CSPN), the most common reason families reported saving for college in anything other than a 529 was “unfamiliarity” with 529 plans. Given that nearly 1 in 4 families are saving for college but not in a 529, states and plan administrators have a lot of work to do to help more families understand all the benefits that 529 plans can offer, including tax-preferred growth, state-level tax advantages, professional designed investment options, and much more.

However, just as the most devoted baseball fan has many things left to learn about the game, the same CSPN survey found that approximately 60% of those currently saving in a 529 plan did not know at least one of the following advantages of 529 plans:

1. Funds saved in a 529 can be used across all states in the US, not just at institutions in a 529 plan’s host state.
2. 529 plans can be used for traditional 4-year colleges as well as 2-year colleges, graduate school, vocational school, technical school, and apprenticeships.
3. Money saved in a 529 plan is not forfeited if not used to pay for education.
4. 529 plans have a small impact on financial aid.
5. Anyone can open a 529 plan – including parents, aunts, uncles, grandparents, friends, and other loved ones.

Clearly, 529 plans have additional work to do to help their current account holders fully understand the flexibility and benefits associated with 529 plans. The good news is that the survey found that 75% of account holders wanted their plan administrator to provide more information on the cost of college and effective strategies for maximizing savings. 

As a state administrator and private-sector plan manager of 529 plans, we look forward to doing all we can to educate families – from those saving in a 529 plan today to those who have yet to hear about 529 plans – on the full range of advantages that 529 plans can offer.

Alyson Luszcz has over 20 years in the 529 industry and is currently AVP, Advisor-Sold Plan Program Manager at T. Rowe Price.  She serves as Co-Chair of the CSPN Data, Operations, and Technology Committee and is based in Owings Mills, MD.

John Mitchell is Director of College Savings at the Illinois State Treasurer’s Office, where he oversees Illinois’ two 529 college savings plans: Bright Start Direct-Sold and Bright Directions Advisor-Guided. He serves as Co-Chair of the CSPN Data, Operations, and Technology Committee and is based in Chicago, IL.

[1] All statistics referenced in this blog post are taken from the CSPN National Survey of College Savers, released in May 2023 by the College Savings Plan Network. The survey was a nationally representative sample of more than 35,000 respondents. A public version of the report is forthcoming.

Apprenticeships have long been an important entry point for construction, plumbing and manufacturing trades. In addition to these sectors, there are now apprenticeships in fields such as healthcare, education, and information technology, with new fields and employers continuing to jump in. According to 2021 data from the U.S. Department of Labor, registered apprentices have increased 64% since 2012. Why this shift? Recognizing the nation’s heightened demand for skilled workers coupled with a desire to reduce their reliance on student loans, an increasing number of students are choosing career-connected pathways, including registered apprenticeships.¹

While one of the main benefits of apprenticeship programs is that apprentices get hands-on training and education while earning a wage, there are still costs associated with enrollment and completion. Thanks to the passage of the 2019 SECURE Act (Setting Every Community Up for Retirement Enhancement), qualified costs associated with apprenticeship programs — such as fees, textbooks, supplies, and equipment like required trade tools — can be paid for with funds saved in a 529 college savings plan free from federal tax, so long as the apprenticeship is certified and registered with the U.S. Department of Labor’s National Apprenticeships Act. 

Some states include apprenticeship as a qualified educational expense for state tax purposes, while others may include recapture of tax deduction from state income tax, as well as penalties. Anyone considering paying for apprenticeship expenses with funds saved in a 529 college savings plan should talk to a qualified professional about how tax provisions affect their circumstances.

To acknowledge National Apprenticeship Week in November 2023, the Wisconsin College Savings Program team talked with apprenticeship leaders in the state to better understand how 529 college savings programs and apprenticeships can work together.

Nicci Pagan, Apprenticeship Coordinator at Gateway Technical College in Racine, Wisconsin, shared that while there are more apprenticeship programs than ever before, many students and families are still not aware of how these programs work, the costs associated with them, and the many types of jobs that can be secured after completion. Speaking from her own personal experience, Pagan shared that she wished she had been more aware of apprenticeship programs as a student and a single mother.

“An apprenticeship program would have been a fabulous solution for me to get my education while also earning a wage.” She made it her mission to educate as many people as possible in the state about the benefits of apprenticeship programs. “They are a great opportunity for individuals who don’t want to give up education to have a skill but need to be able to work as well,” said Pagan.

In Wisconsin, apprentices are generally required to complete coursework at a technical college, through a partnership between the apprenticeship program, employer, and the educational institution. “Apprenticeship programs are specifically designed to meet the needs of employers, so I think in the next five years, we’re going to continue to expand the trades in which we have apprenticeships in,” Pagan stated. “We’ll continue to expand and meet the needs of local businesses and employers as well as the apprentices themselves, as they’re learning and growing.”

The Wisconsin College Savings Program knows that higher education takes many forms, that’s why its Edvest 529 and Tomorrow’s Scholar plans can be used for whatever comes after high school, including four-year universities, community colleges, trade, technical, or vocational schools, certificate programs, and apprenticeships.

If you are interested in pursuing an apprenticeship program, you can browse apprenticeship opportunities nationwide, searching by sector or location at www.apprenticeship.gov. Consult with your 529 college savings plan administrator to see if funds saved in a 529 plan can be used for apprenticeship expenses tax-free in your home state. Lastly, check with your area’s employers and technical/vocational colleges. They may have knowledge of current or upcoming apprenticeship opportunities in your community.

About the Authors:

Cheryl Rapp
serves as a College Investment Program Finance Officer with the Wisconsin Department of Financial Institutions, which oversees Edvest, Wisconsin’s 529 Plan. Edvest has been helping families save for education since 1997. Rapp has over 23 years of experience working for the State as the College Affordability Specialist prior to joining the College Savings Program.  Her experience includes educating students, parents, teachers, and school counselors on the value of and how to complete the Free Application for Financial Student Aid. In her current role as College Investment Finance Officer for the Wisconsin 529 College Savings Program, Rapp manages outreach to Wisconsin residents. She works to increase awareness of the plans among Wisconsin residents while helping them begin saving for their children’s higher education. She is a graduate of the University of Wisconsin-Green Bay, from which she earned a bachelor’s degree in Humanistic Studies.

Chelsea Wunnicke
serves as a Wisconsin College Savings Program Finance Officer with the Wisconsin Department of Financial Institutions. With a background in delivering Financial Capabilities Outreach and Education with the University of Wisconsin Extension, Chelsea has expertise in helping families and communities envision financial inclusion and find strategies to improve their futures. Chelsea lives with her family in rural Richland County, Wisconsin, and has a special interest in helping more Wisconsin communities and youth benefit from early saving for higher education.

After a late release of the 2024-25 FAFSA, students will soon receive their financial aid offers. Here are three steps to help you prepare to pay the bill and set your student up for success.  

Step 1 – Find the Net Price and Reduce Costs
The financial aid offer itemizes the aid for which your student qualifies for the entire academic year. Use the financial aid offer to determine the out-of-pocket cost to attend that school, often called the net price. Direct costs billed by the school include tuition, mandatory fees, required equipment and on-campus housing. You can reduce costs by applying for a waiver for things the student might not need, such as health insurance or optional fees.  

Step 2 – Amount Owed for the Year and for Each Term
Once you have the net price for the year, calculate the net price for each term. Tip: Don’t include federal work-study since this aid must be earned throughout the year. 

Step 3 – Make a Plan to Pay the Bill
Accepted students receive the bill a few weeks before the start of the term. However, now is the time to start planning how you will pay the amount owed to get payments in by the required date. Many families use a piecemeal approach, pulling from various sources, to pay the bill.

Scholarships
Private or outside scholarships are a great way to close the gap. Not all scholarships can be used in the first term. Subtract the scholarship only for the term(s) when funds will be received.

529 Account
Look at your 529 account. Determine how much you want to use for each term in year one and for all subsequent years. A few weeks before the bill is due, schedule your withdrawal request. The servicer needs ample time to get the funds to the school.

529 Withdrawals – Tips for Success:

• Always request your withdrawal during the same tax year that it will be used. 
• Add any wire transfer fees to the requested amount if you plan to wire funds.
• Don’t withdraw more than you need. Any withdrawal not used for qualified expenses (as defined by the IRS) may be subject to taxes and/or penalties.
• Coordinate expenses with the American Opportunity Tax Credit or the Lifetime Learning Tax Credit for a tax-free withdrawal. Consult a tax professional for advice or assistance.

Other Savings
If you have savings besides the 529 account, determine the amount you want to dedicate to the bill each term. You’ll also need to plan for indirect expenses such as books, supplies, and incidentals like laundry. Student earnings can be a big help with these expenses.

Payment Plans
Many schools offer payment plans to help manage payments as part of a family’s budget. Most plans are interest-free but may charge a fee. 

Student Loans
Families may also consider borrowing a Federal Plus Loan or other private education loans. Tip: Be sure to use full-year amounts when setting up a payment plan or applying for student loans.

For more information about paying for school and other resources, visit the College Savings Plans Network (CSPN) at collegesavings.org.

About the author: 

Eva Giles is the College Savings Program Manager for the Finance Authority of Maine, administrator of NextGen 529®.  NextGen 529 is Maine’s section 529 plan which many families use to save for higher education. Outside of work, Eva and her family spend time hiking and enjoying the natural beauty Maine has to offer.

By Jørn Earl Otte, Hartford Funds’ Strategic Marketing Consultant for SMART529 in West Virginia

January 8, 2024

This is the year! You’ve made the commitment – you are going to start setting aside money for your little one’s higher education.

Excellent! Your child or grandchild will be very thankful, and your New Year’s Resolution to start that 529 plan might be one of the easiest resolutions to keep! But where to begin?

The idea of saving for college or trade school can be scary, and the options available can seem overwhelming. With so much in the news about the rising cost of college, it can feel like saving for your child’s future is too big a burden to bear. But you don’t have to feel that way. There are ways to save money for your child or grandchild that can be simple, effective, and stress-relieving.

Here are three simple and effective things you can do to start saving for your child’s future education.

1. Make a monthly “everything” budget: When folks are living paycheck-to-paycheck, the idea of saving even a little bit of money seems too daunting. Groceries, car payments, mortgage, or rent – there appears to be nothing left over. However, if you take a closer look at your monthly expenses, you may be surprised to learn that you have some money left over, but it has been used for things you don’t need. Sit down one evening and write down every single bill you have for the month. Water, electricity, and so forth, but also streaming services, cell phone plans, magazine subscriptions, how many times you ordered dinner-to-go, and how many bags of chips you bought at the grocery store. Everything. Down to the last penny. It may take a little while, but knowing exactly where your money is being spent can be eye-opening. Then, write down your monthly income. Odds are the two figures are pretty close, and likely too tight for your comfort. Look at the list of your monthly expenses – Do you need to spend $100/month on fast food? What about those subscription services? And those magazines? Do you actually read them, or do they collect dust? Be honest with yourself, and you will likely find at least a few dollars each month that can be set aside for something more significant than binge-watching a 1980s sitcom.

2. Open a 529 account: No one knows what the future holds. Your child or grandchild may go to college in-state, or they may fly across the country to follow their dreams. They may love working with their hands and pursue a career in carpentry, or they may get excited about the idea of becoming an electrician. Whatever they may do, you can prepare for it financially with a 529 plan. While most people think 529 plans are just for tuition at traditional four-year colleges, they can be used for so much more – vocational school, technical school, apprenticeships, books, supplies, room and board, and more. And you can feel good knowing that, no matter how little or how much you save for them, every dollar you give them is a dollar they won’t have to borrow from a lender to pay back for the next 20 years. Check out the 529 plan available in your home state, or compare various plans from around the country: www.savingforcollege.com (Read on for more about this).

3. Start small, commit to growth: You will need to check with your own state’s 529 plans to determine what minimums, if any, may exist for opening a plan, and what tax benefits may be available to you. You may also need to seek out the advice of a financial professional to determine which 529 plan is right for you – your own state’s or another’s. Once you know the best path for you, open a 529 account with at least the minimum required. It could be as little as $5, $25, or in some cases even just $1. Commit to the amount every month. Set up automatic contributions from your checking account, or talk to your employer about payroll deductions. After a few months of these minimum contributions, you may begin to realize that you can afford to increase them. If you can, commit to manageable increases every month until you reach the maximum figure you feel you can contribute. No matter how large or small that amount turns out to be, you will have made a tangible, meaningful difference in the lives of your children and grandchildren.

Start with these three simple steps: Budget, Open, Commit. And when your little loved one decides where they want to expand their educational future, you will have helped them to have a financial head start. Happy New Year and Happy New 529 Account!

About the author: Jørn Earl Otte is Hartford Funds’ Strategic Marketing Consultant for SMART529 in West Virginia.