Saving for College in Uncertain Times

Even when unemployment is historically low, and the stock market performance is historically high, it's not always easy to save for our children's college education. And of course, these are not normal times. You may find yourself in a much different financial circumstance than a few months ago, ranging from job loss to significant financial stress and uncertainty. Markets have been volatile, leading to some fears about investing. But if you have the capability, it is still important to save for college.

One of the most popular ways to save for a child's college education is to use a 529 plan, a tax-advantaged account designed specifically for college savings. If the funds are used for qualified educational expenses, then the earnings are tax free. You CAN save in a 529 plan using an FDIC-insured account, or a money market, which is very low risk. However, many invest their 529 savings in the market, which means the funds are subject to market fluctuation. And due to the COVID-19 pandemic, this means that some savers have recently seen their balances decrease.

There are times when the market reacts negatively to world events. Now is a prime example. The financial crisis of 2008 was another. Over the long run, however, the trends have exhibited market growth. After the last economic downturn in 2008, the market recovered to reach historic highs. While nothing is guaranteed, and every family has the responsibility to determine their own best interests, this history shows that it sometimes makes sense to just let your money remain where it sits today and stay the course.

This is not to minimize any suffering that current 529 savers may be feeling. Toward this end, Fidelity Investments, the program manager of MEFA's U.Fund 529 plan, is offering tips on how to navigate market volatility. You can also take advantage of Fidelity's Virtual Assistant for guidance on your account. Please click here for information regarding local Fidelity branches.

There are also ways to save that don't invest in the market and thus are not subject to market fluctuation, such as MEFA's U.Plan Prepaid Tuition Program. This plan allows you to prepay up to 100% of tuition and mandatory fees at over 70 participating Massachusetts colleges and universities. Money invested in the U.Plan is not invested in the market but instead in General Obligation Bonds that are backed by the full faith and credit of the Commonwealth of Massachusetts. If your child doesn't end up attending a participating Massachusetts school, then you can transfer the funds to another Beneficiary or cash them out and receive back what you put in, plus interest (and no penalties).

Saving for college, regardless of the amount, increases the likelihood that a child will attend college. In fact, research shows that students with a college savings account may be 7 times more likely to enroll*. Saving for college also has a minimal impact on financial aid and can decrease the amount a family may need to borrow. If it is within your ability to continue or start saving, consider doing so. If you have general questions about saving, reach out to one of our College Planning Team members at (800) 449-6332 or collegeplanning@mefa.org. You can also request a one-on-one appointment to talk about saving for college with a MEFA College Planning Team member by completing this short online form. We look forward to connecting with you.

* William Elliot III and Sandra Beverly, "The Role of Savings and Wealth in Reducing 'Wilt' Between Expectations and College Attendance," George Warren Brown School of Social Work Center for Social Development (January 2010): 1-2.