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Stock market plunge hitting college savings

Posted by gradefund on December 5, 2008

http://www.collegenews.com/index.php?/article/stock_market_plunge_hitting_college_savings_28983/

Stock market plunge hitting college savings
529 values decreasing, even as tuitions increase

Ryan Simmons

The Dow Jones industrial average is down 40 percent from its high a year ago. If the downturn in the stock market continues, it will become harder for families to pay for college. Even as tuition prices are on the rise, the value of college savings plans are on the decline.

College savings plans, referred to as 529 after the tax code creating them, are funds that families can invest in a variety of stock portfolios. These plans are beneficial because the money is not subject to taxation. They were created to encourage parents to invest and save for tuition and other college expenses.

There is a total of $110.6 billion invested in 529 plans in the United States. Recent figures by Financial Research Corp. show that the value of these plans has declined by almost 8 percent in the last quarter, before the recent stock slump. Over the past five years, plans saw an average annual gain of 6 percent.

A combination of increasing tuition prices, a slumping economy, and increasing unemployment are making families wary of starting new plans. Some families with plans hope to stick out the financial crisis, while others are withdrawing their money now, before it devalues even more.

Jim Sutton, the program services manager for 529 plans in North Carolina, told the New & Observer, “It’s an investment like any other, and we try to make sure people understand there are no guarantees. We would love to be able to say you’re not going to lose any money, but that’s not the case. Obviously, this is the worst we’ve seen anywhere, anytime.”

10/19/08

Highlights
  • $110.6 billion invested in college savings plans nationally.
  • The value of 529 plans is down 8 percent this year.
  • Economic downturns make it hard for families to put money aside for college.
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