Archive for ‘saving for college’

October 25, 2013

‘passively managed index funds outperform almost all actively managed funds’

by Grace

Economics professor Mark J. Perry shared some investment facts on the occasion of “Eugene Fama winning the Nobel Prize of Economics, largely for his path-breaking academic finance research on market efficiency that ultimately led to the introduction of low-cost mutual funds by Vanguard and others that pursue a passive investment strategy of buying and holding portfolios of stocks that track an index like the S&P 500″.

Here’s one fact that should get every investor’s attention.

Empirical evidence shows that passively managed index funds outperform almost all actively managed funds over long holding periods, adjusted for risk, taxes and expenses.

I used to work for a mutual fund company with a winning fund manager who consistently outperformed the market over more than 30 years, but he was the exception.  These days I’m a fan of index funds for most of my investing.



May 31, 2013

A special day to remind us about the benefits of 529 plans

by Grace

Darn! I missed 529 day.

The College Savings Plans Network sponsored National 529 College Savings Day this past Wednesday, 5/29/13.  Many states sponsored promotions for their 529 plans, with some offering special incentives that are still in effect.

Florida, for instance, is waiving the $50 enrollment fee for plans opened from May 20 through June 30.

You can check out individual states’ events and promotions by clicking on this map.


In general, 529 plans are college savings and investment accounts sponsored by state governments. Money deposited in the accounts grows tax free, as long as the funds are used for educational purposes when withdrawn. You don’t have to be a resident of a particular state to use its plan, although some states offer additional tax benefits to in-state plan participants.

Most 529s are designed as traditional savings-and-investment vehicles, but some states offer prepaid 529 plans, which allow savers to pay tuition at certain schools in advance at current rates.

Related:  What you may not know about 529 plans (Cost of College)


May 27, 2013

The challenge of paying for college and saving for retirement at the same time

by Grace

Especially for parents who had their children when they were in their 30s or later, the crunch of paying for college while trying to save for retirement can be tough to manage.  The Family CEO gives advice for families who find themselves in this situation.

Reduce other expenses to free up cash for these goals.

… It might be something big, like driving a car with high payments. Or something small, like have premium cable channels that you never watch. Big or small, eliminating some of these expenses and directing them to retirement or college savings can help you meet those goals.

I have neighbors who put their kids through college debt-free using this strategy.  Exercising great discipline, they gave up one of their cars, fancy vacations, most clothing purchases, and housecleaning services during the six years they were paying college tuition.  It’s certainly not easy, but it can be done.

Create new streams of income or boost the ones you have.

In some cases this is quite feasible – consultants can take on extra clients, teachers can tutor on the side, SAHMs can go back to paid employment.  But sometimes it’s hard to find new money, and even then the amounts are meager.  The whole family can get in the act; maybe a teen can earn spending money from a summer job.

If you need to choose one, choose retirement.

… there are multiple ways to pay for college, but no one is going to fund your retirement for you.

Since time is not on their side, older parents in particular should avoid skimping on their retirement savings.  It can be a hard decision for parents to put their needs above those of their children, but here’s one way to think about it.

It’s like putting on your oxygen mask first on an airplane. Make sure you’re taking care of yourself, so you can in turn take care of them.


April 9, 2013

Private College 529 Plan is a unique option for locking in tuition costs

by Grace

The Private College 529 Plan is “a relatively little-known program that lets participants prepay tuition at private colleges and universities, at today’s rates”.  This plan is unusual in that prepaid 529 plans are typically designed for enrollment in public colleges.

How it works

… Families contribute to a trust and get a certificate representing a share of tuition at current rates, a proportion that remains constant even as tuition rises. So, for instance, if you were to pay in $10,000, and the tuition at a given college were $40,000, the certificate you bought would be worth a quarter of one year’s tuition at that college. If, in 10 years, the tuition is $60,000, your certificate would be worth a fourth of that amount, or $15,000. Money must be in the plan for at least three years before it can be used. The plan covers tuition and mandatory fees, but not room and board and other expenses, like books.

The private plan includes more than 270 participating colleges and universities, but what happens if your child doesn’t want to attend one on their list?

If your child chooses a college that is not in the plan, you can change the beneficiary of the account, so another family member or relative can use it. Or you can request a refund. But you will earn only 2 percent maximum on your savings in the plan, and you could be subject to a loss of as much as 2 percent, depending on the performance of the trust’s investments. (While the value of the tuition certificates are guaranteed, plan documents caution that refunds aren’t assured, if the trust lacks funds to pay them. But Ms. Farmer says it’s “hard to imagine a scenario” in which that would happen. Refunds have averaged about 1 percent of plan assets for the last five years.)

Both the private and state prepaid 529 plans guarantee parents a locked-in tuition cost that can mean substantial savings, but there are some risks involved.

Because the emotional draw of the plan is strong, it is important that families carefully consider possible risks. For instance, to benefit from the plan, students must be accepted at a member college, and they do not get extra points in the admissions office for participating. The savings are greatest when families join early, but making such a commitment for a baby is a gamble. A student may later feel financial pressure to choose a college that participates in the plan.

What if college costs stabilize?  These prepaid plans may not turn out to be such a good value if college costs stagnate or even drop after their meteoric increases over the last few decades.

Related:  Average 529 savings reach all-time high

March 27, 2013

Quick Links – Middle school mess; hypergamy and single-parent families; bipartisan cuts to higher ed; and more

by Grace

◊◊◊  The middle school debate

Various views on the middle school model were presented in the New York Times last year.

You don’t have to have to read all the studies to know that the ages between 10 and 13 are socially awkward ones. But they are also important ones academically, crucial in determining college and career outcomes. Would these preteens be better off staying in an elementary school that covers kindergarten through eighth grade? Or is there a reason why this age group needs to be sectioned off into a separate middle school?

Another observation on the Middle School Mess:

American middle schools have become the places “where academic achievement goes to die.”  – Cheri Pierson Yecke

◊◊◊  Fewer college-educated men are reason for rise in single parent families?

The effects of a low sex ratio

As this column has repeatedly noted, women are hypergamous, which means that their instinct is to be attracted to men of higher status than themselves. When the societywide status of women increases relative to men, the effect is to diminish the pool of suitable men for any given woman. If most women reject most men as not good enough for them, the effect is no different from that of a low sex ratio. High-status men, being in short supply, set the terms of relationships, resulting in libertine sexual mores and higher illegitimacy.

I rarely see the term “illegitimacy” used these days.

◊◊◊  ‘Bipartisan Support for Cutting Higher-Ed

The national trend is marked: between 2009 and 2012, 47 states cut higher education spending per FTE. The median (mean) reduction was just over 23 percent (22 percent). Just three states saw increases: Illinois (unified Democratic government), North Dakota (unified Republican government), and Rhode Island (divided government with Republican governor).

When they have had unified government, both Democrats and Republicans have cut higher education funding. If we look at the seven states with unified Democratic control over this period, six reduced funding. Those six (excluding Illinois’s 2.8 percent increase) reduced funding by between 19 and 31 percent (West Virginia and Washington respectively) for an average reduction of 22.9 percent.

Of the nine states under unified Republican control, eight reduced funding by an average of 25.2 percent, ranging from a 0.2 percent decline in South Dakota to 42.8 percent reduction in Idaho. Texas, one of Leonard’s great villains, reduced funding by 9.2 percent (less than any of the Democratically-controlled states). Florida cut funding by 27 percent, which outranked all but one unified Democratic state. So while Republican-controlled states did cut higher education spending, they were not alone; unified Democratic governments more than held their own. (Of the 17 states with divided government, 16 reduced higher ed spending by an average of 25 percent during the period)….

These data suggest a bipartisan national trend, not a conservative conspiracy. The vast majority of states–whether controlled by Republicans or Democrats–have cut higher education funding in response to budget deficits.

◊◊◊  Grandparents’ contribution make up about 9.5 percent of the total 529 assets

By all accounts, Grandma and Grandpa are more active than ever in funding their grandkids’ educations, including sinking money into 529 college savings plans….

By the end of 2012, American families had a record $190.7 billion socked away in 529 college savings plans, according to a March 13 report from the College Savings Plans Network. …

Parents still contribute the lion’s share of funds invested in 529 accounts. But contributions from grandparents now make up about 9.5 percent of the total, according to the most recent data from the Financial Research Corp, which tracks 529 investments. It was a substantial enough increase that FRC started keeping track of which types of relatives were funding 529s for the first time last year.

March 19, 2013

Average 529 savings reach all-time high

by Grace

Average balances for 529 college savings and prepaid tuition plans grew to a record $17,174 in 2012 — up 12% from an average of $15,349 in 2011, according to a report from the College Savings Plans Network, a nonprofit and affiliate of the National Association of State Treasurers.


In December 2012, the number of existing 529 accounts increased by about 4% to 11.1 million, up from 10.7 million in December 2011. Total 529 investments reached a record $190.7 billion, up from $165 billion in 2011.

Those numbers were also helped by a strong stock market last year. In 2012, the S&P 500 soared 13%.

Is the college savings situation improving or not?

The picture painted by these numbers is rosier than the one depicted by another report of fewer families saving for college.  The discrepancy between the this story and previous one could be due to what was measured (only 529 plans vs. total college savings), source of information (plan administrators vs. parents), and focus on different years (2012 vs. 2011).  Even with this latest positive indication for college savings, there are valid reasons why many parents still “feel overwhelmed, annoyed, angry, or frustrated”.

Yet, students and their families are still struggling to keep up with rapid increases in tuition….

Average tuition paid at public community colleges and four-year colleges and universities rose by 8.3% last year, according to a recent report by the State Higher Education Executive Officers Association.

For the 2012-13 school year, the average prices for tuition, fees, room and board for in-state students at public four-year colleges and universities is $17,860, according to the College Board. And the average bill at private institutions is nearly $40,000.

College savings hits all-time high (CNNMoney)

College Savings Plans Network 2012 Year-End 529 Report

March 5, 2013

Fewer families are saving for college, with many feeling overwhelmed

by Grace

The number of families saving for college has dropped to 50%.


From How America saves for College 2013, a survey commissioned by Sallie Mae conducted by Ipsos Public Affairs

Not only did fewer families save for college last year, but they also saved less. Parents who saved have socked away almost $12,000 total last year, a sharp drop from over $20,000 reported in 2010. That might explain why only 55% of those who are saving for college said this year that they feel confident about being able to cover the costs.

Most parents expect their children to get scholarships and grants, which on average have dropped to about $6,000 per student.

For those parents who aren’t saving for college, 53% say a major reason is that they can’t afford it. Another 18% cite that as a minor reason, while 13% say a lack of money plays no role in their college-savings decision. More than half of nonsavers say they’re not saving at least in part because they expect their children to receive scholarships and grants to cover college costs.

But that’s a risky calculation to make, as the average amount of funding U.S. undergraduates got from grants and scholarships fell 15% during the last academic year. On average, students received $6,077 in grants and scholarships in the 2011-2012 academic year, down from $7,124 a year earlier, according to a July Sallie Mae study.

Whatever their income level, non-savers say they simply don’t have the money for college.

Unsurprisingly, 70% of parents with income below $35,000 say a lack of money comprises at least part of the reason why they’re not saving for college. But what is a shock is that the share of families who earn between $35,000 and $100,000 and say they can’t afford to save is even higher, at 74%. (Among families earning $100,000 or more, 72% of respondents cite money — or lack thereof — as a reason for not saving.)

Only 38% of parents feel confident about meeting the costs of college.  Many feel overwhelmed, annoyed, angry, or frustrated.



December 19, 2012

Quick Links – gift registry for college tuition; School of One; focus on short term for your career

by Grace

»»»  Have you heard about GiveCollege or Instagrad?  They’re like wedding registries for college tuition.

The Instagrad fees look high, about 8-9% of contribution amounts, while GiveCollege fees range from about 4-6% depending on the gift amount.

GiveCollege lists occasions where you can invite “friends and family to contribute to your 529 college savings plan instead of buying a traditional gift”.

  • Baby showers
  • Christenings
  • Communions
  • Bar or bat mitzvahs
  • Birthdays
  • Holidays
  • Graduations

School of One offers personalized math instruction that could increase classroom productivity

In elementary school, John Perez was left in the dust if he hadn’t mastered a concept by the teacher’s second or third explanation. The whole class would move onto something else.

Now in sixth grade at Middle School 88 in Brooklyn, John doesn’t feel that way any longer. A computer algorithm tracks his progress through daily quizzes and adjusts his schedule based on which skills he’s mastered. Each day, he is grouped with students learning at his skill level.

“You’re always learning at your own pace,” said John, 11 years old. “You’re never behind.”

John’s school is one of four in the city to adopt this year a highly touted program known as School of One, which offers the type of personalization that officials see as the future of the nation’s largest school system. Five city public schools now use the program, which has been launched under a different name in Washington, D.C., and Chicago.

So far the mixed results from the School of One pilot program in New York City could be attributed to any number of factors, including significant staff turnover at one school.

A more efficient way to handle formative assessment
Having been told some teachers have no time to perform formative assessments that would help diagnose and address individual learning issues among their students, I see School of One as a possible solution to that problem.  This would seem to help dispel the argument that schools cannot significantly increase productivity.  One problem is that innovations to increase productivity are often politically controversial.

»»»  Indian entrepreneur advises young people to ‘pick a career that excites you at the moment’

Unlike the typical middle-aged manager in the US, “Indians long ago accepted jumping from one role to another in shorter time frames”.  Entrepeneur Rajendra Singh Pawar’s advice to young Indians that they should focus on the short term makes sense, given the nature of today’s ever-changing workplace.

The good news is that youngsters these days are very footloose. They can move from event management to software development to marketing. You get in but you don’t stay there. This is a marked difference not just in India from before but from the whole world.

Today I am more inclined to tell you to pick the career which excites you at the moment. An underlying change is happening in India. While BPO [business process outsourcing, such as call centers and medical transcription] will continue to grow, there are areas that are small now but with high growth percentages.

Pawar points out that a willingness to be flexible and mobile makes it easier for India to “build a transient work force”.  That appears to be our future – a “transient workforce”.

October 25, 2012

Did your 529 plan earn a gold metal?

by Grace

In their annual evaluation of 529 plans, Morningstar awarded its top Gold rating to four plans.

In an annual review of the largest 529 college-savings plans, Morningstar analysts identified 27 plans that are likely to outperform their peers on a risk-adjusted basis over a full market cycle. These plans earned Gold, Silver, or Bronze Morningstar Analyst Ratings, which are forward-looking, qualitative ratings.

The 529 plans earning medals are a diverse group of direct-sold and advisor-sold plans, but all have a strong menu of investment options, solid management, and reasonable fees. The relatively large number of plans earning medals reflects meaningful improvements across the 529 industry in recent years. Very few plans still include options that have performed poorly due to weak management or extremely high fees. As such, only four of the 64 plans rated earned Negative ratings, with 33 plans earning Neutral ratings. Morningstar did not rate 22 of the industry’s smallest plans….

Gold Medalists
Among the plans earning Morningstar’s highest rating, two,  Maryland College Investment Plan and Alaska’s  T. Rowe Price College Savings Plan, feature T. Rowe Price’s topnotch investments. Morningstar has identified these plans as industry leaders for several years running because they offer high-quality active strategies at a reasonable price. The plans were largely unchanged in the past year, though each plan’s single age-based track now features more international equity and real-assets exposure, which should further diversify the plan’s returns.

The other two plans earning Gold medals from Morningstar feature passive investments from Vanguard. To be sure, indexing is increasingly common in direct-sold 529 plans like these, but fees vary dramatically from plan to plan.  Utah Educational Savings Plan and  The Vanguard 529 College Savings Plan of Nevada are well-established leaders at keeping costs low. In these plans, college savers have a number of low-cost age-based tracks to choose from that vary their asset allocation based on the savers’ risk profiles. A primary difference between these two Gold-rated plans is their respective minimum investment. While Vanguard requires $3,000 to get going in its namesake plan, Utah’s offering has no enrollment minimum.

You can start small.
If you or your child want to start saving for college but you only have a small amount to invest initially, the Utah 529 plan may be a good option.  Remember that in some cases there are tax benefits if you use your own state’s plan, but wherever you start your plan you can later exercise the option to move funds tax-free between 529 plans.

Related:  What you may not know about 529 plans (


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