College Savings Plans are in Trouble, but There's Hope

College Savings Plans are in Trouble, but There's Hope

Several tax-free college savings plans, commonly called 529 plans, are in as much trouble as a homeowner facing foreclosure. They are in the red primarily because of the recession and the stock market plunge. Luckily, financial experts such as Forbes and Morningstar Advisors publish online lists of the best and worst 529 plans. Some savers are considering suing, in an attempt to force their states to cover any losses from their 529 plans. Yet, at the same time, the Obama administration wants to see more low- and moderate-income families take advantage of the 529 plans.

Why This News Matters To You

Despite these problems, 529 plans can still help college-aged students and other adults achieve the vital goal of getting a degree. But it pays to do your homework. If you’ve suffered losses—given that the economy remains weak and most state budgets are drowning in red ink—you might even enjoy lobbying your state legislators for a solution similar to one in Texas. In the Lone Star State, a newly created 529 plan shifts investment guarantees from the state to the public university system. That means that if the fund comes up short, the universities cover the difference between available funds and the price of tuition in the future. Thus, lobbying your legislators and college administrators can pay off. Who knows what can happen when financially aware students work for their right to keep their hard-earned college savings?

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