With student loan debt on the rise, it is important to understand different options for funding education costs over the short or long term. Opening and contributing to a 529 college savings plan offers many benefits such as tax-free growth and higher returns, compared to many traditional savings options. It is even easier now to have family and friends contribute through online registries and customized gifting websites. If loans are required, explore repayment options like student loan protection riders or employer loan repayment assistance.
Student Loan Protection Riders and Retirement Protection Riders (Merriman Pulse, November 15)
Student loan debt has surpassed credit card debt in America. At $1.2 trillion, it’s a major financial concern for many people. Student loan debt is almost impossible to erase due to financial hardship, which is a major burden in the event of a disability. There are student loan protection riders that can be added to a disability insurance plan that will help make payments if the insured becomes disabled. The rider can be dropped from the plan when the total loan has been repaid. There is also a retirement protection rider that allows payments to a retirement plan after the client has been disabled for 180 days. This allows clients to continue to contribute to their retirement even if they are not able to work.
529 Plans Are Becoming More Popular, and Here are 3 Reasons to Open One (The Motley Fool, November 17)
Fidelity Investments reports 72% of U.S. families are currently saving for college and since 2007, there has been a 62% increase in the use of 529 plans. In fact, the average 529 balance is at an all-time high of almost $21,000. With the rise of tuition and related costs, 529 plans offer many great benefits that aren’t available with other savings options. First, after a contribution is made the money grows tax-free. As long the proceeds are used for qualified expenses, there are no penalty taxes on the earnings. Also, many states offer tax breaks to encourage in-state investing. Second, on average the return is five times higher than a traditional savings account, even taking the fees into consideration. This can make a big impact especially if saving over a long time span. Finally, with the new 529 rules there is flexibility in what is considered a qualified expense. For example, things such as computer and living expenses during school are allowed without any penalty. The plan beneficiaries can also change anytime without being subject to income limits, age limits, or annual contribution limits.
Student Loan Repayment Could Be 2017’s Hottest Employee Benefit (Money Magazine, November 14)
With nearly 70% of college graduates leaving with debt, student loan repayment assistance is becoming a much sought after workplace perk. Surveys have shown that young workers don’t utilize retirement savings programs because they are locked into paying down their student debt. Different companies offer platforms for employers to create student loan repayment programs that deliver a seamless loan payment for employees. Employers can design the program to fit their company’s needs including capping annual and life-time contributions. The main criticism with repayment programs are they are usually tied to an employee’s current student debt and cannot be applied retroactively, which limits who can benefit. However, as with most company benefit packages, not every employee will be able to use every perk offered. With the rise of the millennial workforce, creating benefit packages that address the concerns of the younger employees as well as those nearing retirement help companies attract and retain a thriving workforce.
The Bureau of Labor Statistics reports that bachelor’s degree recipients 25 and older earn about $2,260 more per month and are less likely to be unemployed as compared to high-school graduates. This indicates that taking out loans to earn a degree is worth the risk involved of struggling with repayment. However, it is important to create a financial plan to keep the “good debt” from going bad. Federal loans are an easy way to establish credit history if the payment schedule is consistent and there are no missed payments. For young students, establishing good credit early can have benefits down the road such as qualifying for lower interest rates and credit cards. Once student debt is established, there are ways to lower that debt such as income-driven repayment programs. Jason Reiman, CFP, says to “look at all your resources and don’t make borrowing or student loans one of the top sources for paying for your college education.” It is important for students to limit the loan amount to what fits within a realistic repayment plan after graduation.
529 College Gift Cards and Online Gifting Tools Popular With Parents (GlobeNewswire, November 18)
With more people opening and contributing to 529 plans, the College Savings Foundation has been looking for ways to encourage family members and friends to contribute to these plans. The availability and options for gifting contributions has significantly increased, creating a unique gift idea as the holidays approach. There are customized gifting websites, online registries and gift certificates that are available for 529 contributions. Not only does this make it easy for friends and family to contribute to the education of a loved one, it sends a message about the importance of saving habits. As the national student loan debt increases, making contributions to 529 plans has never been more important or relevant as it is today.
Read more articles by Anna Sachar
