Thousands of college students across the state are starting their fall semester this week. Whether you have a child beginning kindergarten or in college, the realization of the price for a higher education is unsettling. Americans owe more than $1 trillion in student loan debt and the number keeps growing. In fact, student loan debt now exceeds the total amount Americans owe on credit cards.
Recently, the Pittsburgh Post-Gazette published an article about how college graduates typically earn more than non-college graduates; however, these same individuals are more likely to be ineligible for a home mortgage due to a high debt-to-income ratio because of student loans. More than ever, it’s important to make sure our future generations are given the tools to be successful. Fortunately, there is another way to pay for college that is more affordable than borrowing and that offers tremendous tax benefits.
For nearly 20 years, the PA 529 programs have played a critical role in helping families with the rising cost of college tuition. Sponsored by Pennsylvania and administered by the PA Department of Treasury, this savings program provides two ways to save: the PA 529 Guarantee Savings Plan (GSP) and the PA 529 Investment Plan (IP). The primary difference between the two plans is the way savings grow.
The PA 529 GSP is designed to help an individual’s college savings grow and keep pace with rising tuition. The way GSP works is that the Pennsylvania Treasury Department hires professionals to invest the money for the beneficiary’s account. Regardless of how well or poorly these investments do, the beneficiary’s account grows at the rate of tuition inflation. So if you save enough with the PA 529 GSP for one semester today, you will have enough for one semester in the future—no matter when or how much tuition has increased in the meantime.
The PA 529 IP program is a more aggressive choice since the returns are based on the financial market performance. Families can choose from a lineup of 13 investment options that are all managed by Vanguard, one of the nation's largest financial services companies. Over time, families can adjust their assets in the IP program from the aggressive options to more conservative as the beneficiary nears college age. The PA 529 IP features low fees and there is never an enrollment cost for the program.
A PA 529 savings plan can be created for anyone: a child, grandchild, friend or even yourself. All income levels are eligible for the savings plan with contributions as little as $25, or $15 if contributing through a payroll deduction. No matter which plan is chosen, families will receive tax-deferred growth on earnings and tax-free withdrawals when funds are used for qualified educational expenses such as tuition, books, certain room and board expenses and supplies.
Many individuals are surprised to learn that a PA 529 GSP and IP account is not included in determining eligibility for Pennsylvania state financial aid. This savings plan is also accepted at any school that is accredited and eligible to receive federal financial aid, which is nearly all colleges and universities, community colleges, and career or technical schools. In addition, there is no maximum age for a PA 529 plan and assets may be used at most schools offering adult career training or advanced degrees, including part time programs. Families can always withdrawal the money invested into a PA 529 at any time for any reason.
A record number of families are saving at record levels with the program statewide. The PA 529 savings plan currently serves over 163,000 accounts with $2.5 billion in assets. As an incentive to help families get started, the Pennsylvania Treasury Department is offering free online enrollment in the PA 529 Guarantee Savings Plan—a $50 savings—by typing in “Inspire” at www.PA529.com, by Sept. 30, to take advantage of this offer.
Pennsylvania has seen historic budget cuts to public higher education over the last two years and because of that, many schools across the state have raised tuition. Now is the time to start exploring this successful savings plan Pennsylvania offers so the next generation can obtain a quality education without a future of overwhelming debt.
Senator Wayne D. Fontana
42nd Senatorial District