Joan Marshall: Never too early or late to begin college saving

Average tuition at a Maryland public university has increased by a little more than 70 percent during the past decade, and family income and student financial aid have not kept up with these increasing costs. This gap is forcing students to borrow more money for their education than ever before.

At a national level, recent studies indicate that student debt has overtaken credit card debt in the U.S. for the first time, according to a Wall Street Journal article from August. In addition, many students are now resorting to higher risk, unregulated, private student loans, which typically have variable interest rates that can change with little warning and can have fewer consumer protections than government loans.

To reverse this trend, it’s important for families to understand that saving for college is imperative — and it’s never too early or too late to begin. Fortunately, there are options available that make it easy and affordable for families to start saving for their children’s college education earlier than ever.

Many families find that the easiest and most affordable way to begin saving for college is to invest in a 529 savings plan. A 529 plan is operated by a state or educational institution and offers family and friends a tax-advantaged opportunity to save for college on behalf of a beneficiary. Contributions can be as little as $15 to $25 per month. Every state offers at least one 529 plan, but the plans differ from state to state, so it is always important to research the details thoroughly before investing. To learn more about and compare the 529 plans offered by nearly every state, visit www.CollegeSavings.org.

Even though 529 plans are state-run, they do not have to be applied to colleges in the same state in which they are opened. For example, money saved in one of Maryland’s 529 plans may be used at any eligible college or university in the country. There are other benefits to 529 plans as well — all offer tax-deferred growth and tax-free earnings at the federal level when funds are used for eligible college expenses. Also, 34 states and the District of Columbia offer state tax deductions or credits for contributing to certain 529 plans, in addition to federal tax benefits.

For Maryland taxpayers, the two 529 plans offered by the College Savings Plans of Maryland, the Maryland Prepaid College Trust and the Maryland College Investment Plan, are the only 529 plans that are eligible for a Maryland state income deduction. Maryland allows income deductions on contributions for each account holder (parents, grandparents, other relatives or friends) of up to $2,500 per account or beneficiary, depending on the plan. For more details about the Maryland 529 Plans, visit CollegeSavingsMd.org.

Choosing to invest in a 529 plan to save for college doesn’t just make sense financially, but it also makes sense in terms of setting students — and entire families — on a path to college. A 2010 study by the Center for Social Development found that youth who have saved for college are almost four times more likely to attend a four-year college than youth with no college savings account.

Along with convenient ways to save for college, perhaps the best benefit of participating in a 529 plan is peace of mind for parents and students, knowing that a college education is within their reach.

Joan Marshall is executive director of the College Savings Plans of Maryland and chair of the College Savings Plans Network.