RESTON, Va., Aug. 27, 2008—September is National College Savings Month and the ideal time for students and parents to invest in their future by starting to save for college. A new Sallie Mae study conducted by Gallup, How America Pays for College, found that only 9 percent of families paid for college last year using a college savings fund, such as a 529 college savings plan. An additional 12 percent of parents paid using other savings and investments; however, they missed out on the tax-advantaged benefits that saving-for-college-specific financial instruments have to offer.
This data echoed the findings of a December 2007 report from the Institute for Higher Education Policy (IHEP) and The Sallie Mae Fund: too many parents of middle school students — 63 percent — have not started saving for college, saying they needed money for other things or still had time to start. And, few parents of middle schoolers use financial instruments specifically intended for saving for college: only 8 percent had used 529 plans, 1 percent had used prepaid tuition plans and 2% had used loyalty/reward programs.
Sallie Mae, the nation’s leading paying-for-college company, and its subsidiaries Upromise Investments, one of the nation’s leading administrators of 529 college savings programs, and Upromise® rewards, the largest private source of college funding contributions in America, are committed to reversing these trends.
“It is never too early or too late to save for college,” said Martha Holler, spokeswoman for Sallie Mae. “If you are going to save for college it is important to consider a college savings plan and let your savings compound on a tax-deferred basis.”
As students head back to school in September, parents can get back to saving through one of these college savings options:
529 College Savings Plans
A 529 college savings plan is a tax-advantaged investment vehicle designed to encourage saving for higher education expenses. 529 plans allow investors to set up an account for anyone, including himself/herself, to invest money in a tax-deferred account to be used for higher education costs. Money can be withdrawn at any time, but only money used for qualified higher education expenses will be free of federal income tax.*
Families have the opportunity to increase their college savings in their 529 plans through UgiftSM — Give College Savings. Ugift was created by Upromise Investments, and it allows account owners in participating 529 plans to invite family and friends to give college savings contributions in lieu of traditional gifts. For more information about Ugift and participating plans, please visit www.529.com.**
“Ugift is a great way to involve family and friends in the college savings process,” stated Liz Robinson, spokesperson for Upromise Investments. “Using their social network, parents, grandparents, and others now have additional help in achieving their college savings goals.”
Sallie Mae’s Upromise rewards subsidiary is another way families can increase their college savings and add to their 529 college savings plans. Upromise is a free service where members can save money for college while making everyday purchases of products and services from groceries to gas, shopping their favorite online stores, dining out and even buying or selling a home. Upromise members have saved $450 million since 2001. Savings accumulate in a member’s Upromise account and can be transferred into a 529 college savings plan account administered by Upromise Investments. Visit www.Upromise.com for more information.
Coverdell Education Savings Accounts
Coverdell Education Savings Accounts (Coverdell ESAs) are a tax-advantaged investment account designed to encourage savings to cover future college education expenses. ESAs allow up to $2,000 per beneficiary each year tax-free and can be opened for any beneficiary under the age of 18. Money can be withdrawn when ready to be used to pay for the beneficiary’s educational expenses. ESA savings are not limited to paying for college, and may be used to pay elementary and high school educational expenses.
Custodial Accounts
The most common trust for a minor is a custodial account, also known as an UGMA (Uniform Gift to Minors Act) or UTMA (Uniform Transfer to Minors Act) account. Money placed in a custodial account is owned by the child, but controlled by an adult custodian — usually a parent — until the child reaches their eighteenth or twenty-first birthday (depending on the state). Income generated by these accounts is taxable. In addition, money placed in this type of account is considered to be the child’s financial asset in the federal needs analysis calculation, and could reduce the amount of student financial aid the child may qualify to receive.
Through CollegeAnswer.com, Sallie Mae’s planning- and paying-for-college Web site, families can evaluate savings programs and get objective information on various savings plan options. Specifically, CollegeAnswer.com offer tools to help families select the right plan for them, including information on all plans and state-to-state comparison charts and savings calculators. Visit www.CollegeAnswer.com/
saving for more information.
Saving for college is an important part of Sallie Mae’s 1-2-3 approach to paying for college: first, use free money by filling out the FAFSA to access need-based grants, research and apply for scholarships, and supplement with current income, college savings, and an interest-free monthly tuition payment plan. Second, explore federal loans. Available to both students and parents, they can offer low, fixed interest rates and flexible repayment options. Third, fill any gap with private education loans. They are convenient and designed to help students meet the total cost of college.
Sallie Mae’s new Education Investment Planner (www.SallieMae.com/plan) enables families to see the value of college savings as they customize their own pay-for-college plan. Using the Planner, families may estimate the total cost of a college degree, build a plan to pay for college, and estimate the salary a graduate would need to keep repayment of student loans manageable. Sallie Mae’s Education Investment Planner helps families understand the total cost of college and how to pay for it without going beyond their means.
For more about saving for college, visit www.SallieMae.com and www.Upromise.com; for a free downloadable brochure on saving for college, visit www.SallieMaeFund.org and click on Download Free Resources.
* Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.
** Consider before investing whether your or the beneficiary’s home state offers any state tax or other benefits that are only available for investments in that state’s qualified tuition program.
For more information contact:
Erica Eriksdotter (703) 984-5628
), commonly known as Sallie Mae, is the nation’s leading provider of saving- and paying-for-college programs. The company manages nearly $178 billion in education loans and serves 10 million student and parent customers. Through its Upromise affiliates, the company also manages more than $19 billion in 529 college-savings plans, and is a major, private source of college funding contributions in America with 9.4 million members and $450 million in member rewards. Sallie Mae and its subsidiaries offer debt management services as well as business and technical products to a range of business clients, including higher education institutions, student loan guarantors and state and federal agencies. More information is available at
. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.