Making the Case for College Savings | American Funds

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TALKING POINTS

Making the Case for College Savings

Help your clients save for their children’s education.


Nine out of 10 parents believe their kids will pursue higher education,1 but with college costs continuing to rise, it can feel like an insurmountable task. Use the following resources to answer common client concerns and demonstrate how a 529 plan can help your clients pursue their college-savings goals.

 


“How Much Do I Need to Save?”

In 2016-2017, the average cost of a year at an in-state public university was approximately $20,000, while a year of private school was more than $45,000.2 When you consider a household with multiple children, affording this is no small feat.

Talking point you can use with clients:

  • Note that despite the rising costs, a college degree is more important than ever. Studies show that those with bachelor’s degrees earn 67% more than high school graduates and experience higher job satisfaction and lower unemployment.3

“I Can’t Afford to Save Right Now.”

The average graduate leaves college with around $37,000 of debt.4 Outstanding student debt in the U.S. has swelled to approximately $1.34 trillion, surpassing those of credit cards ($784 billion) and auto loans ($1.19 trillion).5 When clients consider this, the question becomes not “How can I afford to save?” but “How can I afford not to save?”

Talking points you can use with clients:

  • Explain that by the time today’s newborns are set to enroll in college, four years at an in-state public university will likely cost more than $267,000.6  Every little bit helps, and it’s never too early to begin saving for the educational objectives of those you care about.
  • Starting a savings plan can make a meaningful difference by potentially reducing the amount your client or the account beneficiary may need to borrow to pay for school.

“Can Tax-Advantaged Saving Really Make a Difference?”

Saving for college with a 529 account can represent an advantage over taxable accounts.

Talking points you can use with clients:

  • Explain that with a tax-advantaged college savings plan, the money clients withdraw to pay for expenses like tuition is free from federal and, in almost all cases, state tax.
  • Explain to clients how a hypothetical investment of $100 per month for 18 years in a tax-free account, with an average return of 8% per year, would have grown to more than $48,000 (assuming no withdrawals were taken). The same hypothetical investment in a taxable account would have incurred $9,400 in taxes.7
  • By increasing the regular investment amounts, the potential for added growth offers considerable incentive.

“How Can I Possibly Reach My College Savings Goals?”

Saving for college is often a family affair, with parents, grandparents and even beneficiaries contributing to the goal. Opening a college savings account allows everyone to pitch in.

Talking points you can use with clients:

  • Explain that while anyone can contribute to a 529, control remains with the account owner. Grandparents, extended family and friends, and even the beneficiary may help contribute to the goal.
  • Grandparents may opt to help grandchildren with larger gifts, which may also have estate planning benefits. Note that those seeking to transfer assets out of their estates can contribute up to $14,000 a year ($28,000 for married couples) toward a loved one’s college education without gift-tax consequences.

1Source: Sallie Mae, How America Pays for College (2017)
2Source: The College Board (2016). Total Incldes tution, fees, room and board. 
3Source: Bureau of Labor Statistics, "Unemployment Rates and Earnings by Educational Attainment, 2016" (April 2017) 
4Source: https://studentloanhero.com/student-loan-debt-statistics/ (September 2017)
5Source: Federal Reserve Board of New York, Quarterly Report on Household Debt and Credit (August 2017)
6Source: https://bigfuture.collegeboard.org/pay-for-college/college-costs/college-costs-calculator. (2017) Results are based on the assumption that college costs rise at 6% a year.
7Assumed growth rate for illustrative purposes only and not intended to portray an actual investment.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

This material is intended for use by financial professionals or in conjunction with the advice of a financial professional.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Regular investing does not ensure a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining.