Know Your Options When Saving for College

When families are young, the future cost of college is usually not a high-priority concern. Family money goes to meet more immediate needs. While saving for college may be an important goal, parents believe time is on their side. But time passes quickly, and many families wait too long to develop a plan to deal with college sticker shock.

It’s important to start saving as early as possible. If you have an 18-year window before your child enters college, then time is, in fact, on your side. If you wait until your child is almost in high school, then time works against you.

Costs Will Continue to Rise

The need to start saving sooner rather than later is driven by the cold, hard numbers associated with earning a college degree. Estimates by Peterson’s Undergraduate Database give a view of future college costs.

• In 2021, the average cost of tuition, room and board for a public four-year, in-state college will be $128,480.¹
• For four-year private colleges, the estimate jumps to $262,576.²
• Ten years later in 2031, the estimates are $209,280 for a public college and $427,708 for a private college.^{1, 2}

Will your family be prepared to deal with these costs? As daunting as it may seem, there are savings options available. Before we examine some of them, let’s address a question families are asking with greater frequency.

Is a four-year college degree worth the cost?

Intuitively, most parents would probably answer “yes” to this question. This view is also supported by research on the subject.

A 2011 study by the Brookings Institution,³ for example, found the benefits of a four-year college degree can boost the odds of finding a job and making more money. Over the course of a lifetime, the average college graduate earns $570,000 more than a person with only a high school diploma, according to Brookings.

Research by other groups such as the U.S. Census Bureau, the Internal Revenue Service and the College Board has resulted in similar findings – namely, that the long-term gains associated with a college degree are worth the significant up-front costs.

What are your college savings options?

While the advantages of earning a college degree may be well established, it still remains a financial stretch for most American families. Proper planning is the key to success. That’s why it’s important to start saving early and to explore what savings options work best for you.

• You can tap into traditional investment options – like savings accounts, annuities or U.S. Savings Bonds – when the college years arrive. Except for the wealthy, the build-up in these assets will probably not be enough to cover the bills.
• College student aid programs offer another source of funding, mostly in the form of loans at reasonable interest rates. But it’s borrowed money and has to be paid back. According to a study by The Institute for College Access and Success,⁴ graduates of the class of 2010 left their institutions with a degree and an average debt load of more than $25,000. 
• 529 and Coverdell plans are designed specifically to encourage saving for college. A state or educational institution operates a 529 plan, while a Coverdell is a trust or custodial account administered by a bank or an entity approved by the IRS. Although the two differ in some details, both allow contributions to grow tax deferred and withdrawals for qualified education expenses are tax free.⁵ Learn more about 529 plans and Coverdells.

Whatever savings options you choose, the key is to start early and work with your financial advisor to develop a plan that will help ensure your ability to pay for college.

¹ Based on average total charges of $18,300 for tuition, plus room and board for one year (2011–2012) at a public, four-year, in-state college (Source: Peterson’s Undergraduate Database). Assumes 5% annual increases.

² Based on average total charges of $37,400 for tuition, plus room and board or one year (2011–2012) at a private, four-year college (Source: Peterson’s Undergraduate Database). Assumes 5% annual increases.

³ Where is the Best Place to Invest $102,000: In Stocks, Bonds, or a College Degree?" Brookings Institute, April 13, 2012.

⁴ The Project on Student Debt (an Initiative of The Institute for College Access & Success); Student Debt and the Class of 2010, November, 2011.

⁵ Non-qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty. Such withdrawals may have state income tax implications.

SMART529 is offered by the West Virginia College Prepaid Tuition and Savings Program Board of Trustees and is administered by Hartford Life Insurance Company.

You should carefully consider the investment objectives, risks, charges and expenses of SMART529 and its Underlying Funds before investing. This and other information can be found in the Offering Statement for SMART529 and the prospectuses or other disclosure documents for the Underlying Funds. Please read them carefully before you invest or send money. SMART529 is distributed by Hartford Securities Distribution Company, Inc.  Member SIPC.

Investments in SMART529 are not guaranteed or insured by the State of West Virginia, the Board of Trustees of the West Virginia College Prepaid Tuition and Savings Program, the West Virginia State Treasurer's Office, Hartford Life Insurance Company, The Hartford Financial Services Group, Inc., the investment sub-advisors for the Underlying Funds or any depository institution and are subject to investment risks, including the loss of the principal amount invested, and may not be appropriate for all investors.

West Virginia provides its residents with tax advantages for investing in SMART529.  If you reside in or have taxable income in a state other than West Virginia, you should consider whether your state has a qualified tuition program that offers favorable state income tax or other benefits exclusive to your state's program that are not available under the SMART529 program.

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