In honor of April as National Financial Literacy Month, the Michigan Department of Treasury is reminding Michiganders about the importance of saving for college and using a 529 plan as a way to save.
A 529 plan is an education savings plan designed to help families set aside money for future education expenses. Contributions provide state income tax deductions and earnings in a plan grow tax free and are exempt at the federal and state level.
These plans get their name from Section 529 of the federal Internal Revenue Code.
“Financial Literacy Month is a great time for parents, grandparents and others to begin thinking about how they can reduce potential student loan debt based on the overall cost of higher education,” said Robin Lott, executive director of the state of Michigan’s 529 plans. “Each of our plans provide an excellent avenue for savings, depending upon each student’s goals.”
The state of Michigan offers three Section 529 college saving plans that potentially provide state and federal tax benefits: Michigan Education Trust (MET), Michigan Education Savings Program (MESP) and MI 529 Advisor Plan (MAP). These plans can be broken up into two categories:
Prepaid Tuition Plan (MET) allows for the pre-purchase of tuition based on today’s rates and then paid out at the future cost when the beneficiary is in college. Performance is often based upon tuition inflation. Prepaid plans may be administered by states or higher education institutions.
Investment-Based Savings Plans (MESP and MAP) are different in that your account earnings are based upon the market performance of the underlying investments, which typically consist of mutual funds. Investment-based savings plans may only be administered by states.
To learn more about 529 plans, go to SavewithMI529.com. For more information about saving for college, contact MI Student Aid at mistudentaid@michigan.gov, 1-888-4-GRANTS or @mistudentaid on Facebook, Twitter, Instagram and Snapchat.
Upper Peninsula parents are less likely than those in other regions of the state to have begun saving for their children’s college education, a first-of-its-kind survey by the Michigan Education Trust (MET) found.
The study by the state’s 529 prepaid tuition program discovered that 47 percent of U.P. families are saving for college, compared with 56 percent in Southeast Michigan and 53 percent in both South-central and West Michigan. The Saginaw Bay region, also at 47 percent, is the only part of the state with an average savings rate as low as the U.P.’s.
Furthermore, the state’s overall 54 percent college savings rate is less than the 57 percent nationwide average as determined by the Sallie Mae student loan company’s “How America Saves for College 2016” report.
MET’s U.P. survey results were released today in conjunction with a college savings informational session hosted by State Sen. Tom Casperson, R-Escanaba, State Rep. Sara Cambensy, D-Marquette, and MET Executive Director Robin Lott at the Peter White Public Library in Marquette.
MET – which is managed by the Michigan Department of Treasury – undertook the survey to gain deeper understanding into Michigan families’ needs and possible roadblocks to saving for college.
“There’s a lot of research on saving for college on a national level, but detailed information specific to Upper Peninsula and Michigan families – the people we serve – isn’t readily available,” Lott said. “The statistically valid survey results will help us determine how we can better meet Michigan families’ college savings needs and increase awareness that 529 college savings can be used for trade and technical schools.”
Cambensy noted that the survey also discovered that U.P. parents are less aware of Section 529 college savings plans such as MET compared with those in other regions of the state.
Section 529 plans, named after a section of the Internal Revenue Code, are tax-advantaged savings and investment vehicles designed to encourage saving for college.
“I would strongly urge Upper Peninsula families who are looking for safe and convenient ways to save for their children’s higher education to look into what MET and the Michigan Education Savings Program – or MESP – have to offer,” Cambensy said. “Both plans are consistently among the highest rated of their kind in national rankings.”
MET’s online survey, which drew 742 responses from Michigan residents age 18 or older who have children under 18 living at home, has a margin of error of 3.6 percent. It aimed to gauge awareness of 529 college savings plans, perceptions related to saving for college, the value placed on saving for college, and strategies parents use to reduce college costs.
“It’s clear that Upper Peninsula parents value a college education,” Casperson said. “Survey results show that 91 percent view college as an investment in their children’s future and that 77 percent are willing to stretch themselves financially to ensure they can attend college.”
In fact, 33 percent of U.P. parents would use a portion of their retirement savings for their child’s college costs, the second-highest rate in the state behind 39 percent in the South-central region, the survey found. Other primary sources of paying for college expenses, in the order most cited, were scholarships, parent income at the time the child is enrolled in college, federal or state financial aid, or grants and student loans.
Additional findings from the MET survey include:
Only 40 percent of U.P. parents are highly confident they will meet the costs of college education, by far the lowest level in the state. West Michigan, at 49 percent, was next lowest.
Among parents statewide, the leading reason for not saving for college is not having enough money, which was cited by six in 10 respondents. U.P. parents, however, were most likely to say they lack the money to save, with 79 percent giving that reason.
Of those who are saving, half started when their oldest child was between 0 and 3 years old, and eight in 10 had started saving by the time their oldest child was 10.
Also among savers, 55 percent are using a traditional bank savings account to accumulate college savings.
Among nonsavers, 57 percent say they feel “overwhelmed” about saving for college, compared with 37 percent of savers.
Relatively few parents believe they will not need college savings (5 percent) or that financial aid or scholarships will be enough to cover costs (11 percent).
MET, which allows for the purchase of future college tuition credits based on today’s rates, is celebrating its 30th anniversary as the nation’s first prepaid tuition program. MET, MESP and MI 529 Advisor Plan (MAP), Michigan’s three Section 529 college savings programs, offer Michigan taxpayers a state income tax deduction on contributions and potential tax-free growth on earnings if account proceeds are used to pay for qualified higher education expenses. More information about MET is available at SETwithMET.com or 800-MET-4-KID (800-638-4543).
