The numbers are nothing short of staggering. Major news sources from Forbes to CNBC and from USA today to US News and many more are doing in-depth articles on the impact of student debt. It is a major topic in current political campaigns. And, for many Americans, it is a serious negative impact on the national economy and on their personal lifestyle. Just to add some perspective to the size of the issue, a recent USA Today article estimated that 40 million Americans owe a combined student loan debt of $1.2 Trillion.
Now, rather than spend the rest of this article on all the negative societal and personal impacts of the huge student loan debt, it might serve us better to consider what plans might be put in place now to keep members of your family from experiencing the negative effects of student debt.
The 529 Plan may be the right place to start. They work much like a 401K or IRA by investing contributions in mutual funds or similar investments. The plan offers several options from which to choose. Naturally, the account will go up or down over time, depending on the performance of the option you select.
In terms of tax benefits, as long as the plan addresses some basic requirements, federal tax law provides special tax benefits.
Although contributions are not deductible, earnings in a 529 plan grow federal tax-free and will not be taxed when the money is taken out to pay for college.
There are no income limits – or age limits – to participate. And, with as many people as are choosing to go back to school to complete unfinished degrees or add graduate degrees, 529 plans take on even more significance.
Of course, it would be best to talk with a financial advisor to whether this approach to dealing with the costs of higher education would be best for you. But, now is the time to explore this option and consider using it to help protect you and your children from the long-term negative financial impact of debt created by the increasingly high cost of higher education.