- Office of Consumer Affairs and Business Regulation
September is College Savings Month, the perfect time for families to think about funding education costs. With rising tuition fees, it’s crucial to plan. Here’s how you can make the most of the resources and programs available.
Understanding the 529 Plan
A 529 Plan is a tax-advantaged savings plan designed to motivate individuals to save for future educational expenses. As noted by the Internal Revenue Service (IRS), “the money in a 529 plan grows tax-deferred until it is withdrawn. As long as the money is used for qualified education expenses withdrawals aren't subject to either state or federal taxes. In addition, some states may offer tax deductions on contributions.” The expenses noted include:
- Undergraduate and graduate tuition
- Vocational and career training schools
- Certain international schools
- K-12 tuition (with a $10,000 annual cap)
- Student loan repayment (up to $10,000)
- Apprenticeship programs
- Fees, food, housing, books, supplies, and equipment
There are two main types of 529 plans available in Massachusetts: education savings plans and prepaid tuition plans.
U.Fund vs. U.Plan
The U.Fund is Massachusetts' 529 Education Savings Plan. “The U.Fund offers flexibility, can be used for qualified education expenses, and is invested in the market.” However, the U.Fund does not provide protection against rising tuition costs, which means savings may not align with increasing college expenses. Massachusetts also offers the BabySteps Savings Plan, which provides a $50 investment into a U.Fund account for every child born or adopted in the state when the account is opened within one year of birth or adoption. This gives families a strong start in their college savings journey.
The U.Plan is Massachusetts' Prepaid Tuition Program. “The U.Plan offers peace of mind, can “be used for tuition and mandatory fees, and is invested in bonds,” according to the Massachusetts Educational Financing Authority (MEFA). This plan allows families to lock in current tuition rates at associated Massachusetts colleges and universities. Savings in the U.Plan are invested in bonds, which provides a more predictable return. One downside is that the U.Plan is limited to specific institutions.
Calculating the True Cost of Attendance
Understanding the full cost of attendance is important when planning for college. The College Board notes that expenses include both direct and indirect costs, specifically, housing, meal plans, institutional healthcare, textbooks, transportation, dorm furnishings, and other personal expenses. To get an accurate estimate, families can use tools like the Net Price Calculator provided by the College Board, which considers potential financial aid when calculating the actual cost of college expenses.
How Much Should You Save?
Determining how much to save can feel overwhelming. Aim for saving one-third of a four-year program’s tuition and fees. According to Education Data Initiative, the 2023-24 school year average tuition and fees are:
- Private Nonprofit Colleges: $38,421
- Private For-Profit Colleges: $15,868
- Public In-State Colleges: $9,750
- Public Out-of-State Colleges: $28,386
From 2010 to 2022, the cost of tuition at public four-year colleges increased by 9.24%, highlighting the importance of starting to save early.
Reducing Costs
There are many ways where students can also take steps to reduce their college expenses. This includes applying for financial aid, working part-time, and earning college credits during high school through Advanced Placement (AP) classes.
Another option is to take out student loans. The Massachusetts Division of Banks (DOB) provides valuable resources and guidance on managing this debt effectively, including information on student loan lending, repayment, and regulation.
The Massachusetts Attorney General’s Student Loan Ombudsman can help you obtain information about your loans, resolve disputes, get mistakes corrected, and explore your repayment options. See the Attorney General’s Student Loan Assistance Guide for more information.
If you have questions about repaying student loans, visit the Consumer Financial Protection Bureau's Repay Student Debt Guide for tips and tools on optimizing how to pay off student loans. The interactive guide is a valuable tool for repaying student loans in all types of situations, even in default.
Resources for Financial Aid and Scholarships
Massachusetts offers resources for securing financial aid and scholarships. Visit the Mass.gov College Financial Aid & Scholarships page and the College Board Scholarship Directory to explore available options.
With the right tools and resources, education can be more affordable and definitely achievable.
