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Children with some form of college savings are 7x more likely to attend college than those with no savings.1
One reason could be the heavy burden of borrowing. Often, students forced to borrow everything they’ll need for college are left with staggeringly high debt that affects their lifestyles – and life choices – for many years to come.
Consider these hypothetical scenarios:
Scenario 1: Terry's parents start investing $100 a month into a 529 plan account right after Terry's birth. In 18 years (assuming a 5% annual rate of return), they could potentially save more than $35,000.2
Scenario 2: After exhausting federal student aid options, Terry has to borrow $35,000 to attend college. Based on a private student loan rate of 7.0 percent, Terry could be faced with a monthly payment of $406 for 10 years (or $48,720).3
College graduates earn as much as 65 percent more than the typical high school graduate over 40 years.4
1Center for Social Development, Washington University, 2010.
2The hypothetical example assumes college begins at age 18 and is based on a 5 percent rate of return compounded daily, and is for illustrative purposes only. It does not reflect an actual investment in any particular 529 plan or taxes, if any, payable upon withdrawal.
3This hypothetical example is for illustrative purposes only and assumes no withdrawals made during the period shown. It does not represent an actual investment in any particular 529 plan and does not reflect the effect of fees and expenses. Your actual investment return may be higher or lower than that shown. The loan repayment terms are also hypothetical.
4College Board: Trends in College Pricing, 2013.