Despite a plummeting stock market, rising inflation and the Biden administration’s college loan relief plan, Maryland financial advisers say they are not adjusting their counsel about saving for education.
Their message to clients? Stay the course.
“Our advice really has not changed,” said Ryan Staton, of StatonWalsh in Timonium.
Inflation in particular does not faze him.
“The cost of college has outpaced inflation for a very long time,” Staton said. “We’ve always educated clients on that. You have to keep in mind that you’re saving for a moving target, one that moves at a much faster rate than your average, everyday spending.”
Likewise, the state of the stock market does not generally affect college planning, said John Bacci, president of Foundation Financial Advisors in Linthicum.
“We try to get our clients to put money away when their children are young and to do it systematically. We really don’t concern ourselves too much with the stock market for long-term goals,” Bacci said. “We’re still hitting heavy with the 529 and traditional education planning.”
State 529 plans, or qualified tuition plans, are authorized by Section 529 of the Internal Revenue Code and are the primary vehicles for saving money for children’s college education. Sponsored and run by the 50 states and the District of Columbia, state agencies and educational institutions, the plans grow tax-deferred and withdrawals are not taxed as long as the money is used for qualified education expenses.
In addition, Bacci said the White House loan forgiveness plan, announced in August, has not altered his advice to clients.
“Loan forgiveness is really a kind of outside thing that certainly doesn’t change our approach at all,” he said. “I don’t think people are going to come up with the hope or assumption that they can just borrow all their money and not pay it back.”
The Biden administration plan would cancel up to $20,000 in college debt for borrowers whose individual incomes are less than $125,000 annually, or $250,000 for married couples. It would also cap monthly payments for undergraduate loans at 5% of a borrower’s discretionary income, which is half the rate most borrowers must pay now.
Joan Marshall, a financial adviser with Wagener-Lee in Columbia, is also leery of relying on the loan forgiveness plan.
“It could still be blocked, it could still be delayed,” she said. “It’s risky to rely on any kind of loan forgiveness when your child is young now and you don’t know what will happen in the future.”
A lawsuit filed in U.S. District Court in Indiana on Sept. 27 seeks to scuttle the White House loan forgiveness plan. Backed by a public-interest law firm in California, the suit says the executive branch lacks the authority to create a new loan relief policy and is usurping Congress’ power to make law.
Like Bacci and Marshall, StatonWalsh’s Staton doesn’t think the loan forgiveness plan should lull people into thinking they can save less for their children’s college education.
“It’s a bit of a coin flip as to whether it will actually happen,” he said, adding that COVID-era relief measures may have led people to believe that “some kind of government program will kick in to provide a safety net.”
If the White House loan forgiveness plan is eventually enacted, Staton said, he and his business partner, Devin Walsh, might adjust their advice to clients. But for the time being, he said, “it’s better to assume that it’s not going to happen.”
Added Staton: “If it does, and it benefits a client, great — and we’ll show you how to take advantage of that.”
The national student loan debt is significantly higher than the amount saved in 529 plans today, indicating a large gap between what people are saving and what they need to save for college.
According to the Education Data Initiative, borrowers owed $1.748 trillion in U.S. student loan debt as of July. Meanwhile, the 529 industry had more than $457 billion in assets under management, according to a 2022 college savings report by AKF Consulting, a municipal adviser to public sector administrators of state-run investment plans, including 529 plans.
“I look at it as a math problem,” Bacci said of saving for college. “Looking 18 years in the future, it’s pretty easy to come up with a plan. Like an exercise plan or weight-loss plan, the genius isn’t putting together the plan, the genius is in the execution. We like to get people to put money away systematically into designated accounts.”