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Many Americans unaware of college savings plans


Tuesday, May 28, 2013

While earning a college degree has never been more important, the rising costs of higher education make this goal increasingly more challenging for many students and their families. The increase in the average student debt necessitates the need for sensible financial planning. A fairly common and relatively easy way to save for college is the 529 Plan, a voluntary contribution savings plan. However, a new study reveals that many Americans remain in the dark about this financing option.

Planning ahead
According to a recent press release issued by investment company Edward Jones, a majority of American families are unaware of 529 Plans. This type of college financing agreement enables families (and extended families) to contribute to a savings fund established in a child's name. When the child reaches college age, the money that has accrued in the fund can be used to cover college expenses including tuition, room and board, equipment and mandatory fees.

All 50 states sponsor at least one type of 529 Plan, and offer account holders generous tax incentives to encourage families to save for their children's college education. Once established, parents, grandparents or other family members can contribute to a 529 Plan for up to 15 years per student. Despite the ease and availability of this type of college financial planning, many Americans do not even know that 529 Plans exist.

"Without a doubt, the cost of college can be a daunting figure for families to navigate," said Greg Dosmann, a college savings expert at Edward Jones. "Tackling this goal over the long term can reduce much of the stress caused by those costs."

College preparation requires financial awareness
The Edward Jones study also revealed that the socioeconomic status of families played an important role in how knowledgeable they were about college savings accounts. The report revealed that wealthier families tended to be more aware of options like 529 Plans, while families with lower incomes were often unaware of this type of college financing.

In addition to 529 Plans, there are other ways for students to offset the costs of earning their degree. For example, most schools offer merit-based financial aid like scholarships, while almost all postsecondary institutions offer need-based financial aid. In many cases, the college financial aid package makes the cost of college more affordable. By combining financial aid with a long-term savings strategy like a 529 Plan, students and parents can approach college as a true investment in the future.

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