I will be talking to Paul Curley, the Director of College Savings Research at Strategic Insight in Boston, MA and a strong advocate of saving for college and using the 529 College Savings Plan as a vehicle to paying for college. In this 25-minute discussion we cover some great topics any parent will want to hear. We will also offer some great tips and resources you can use to prepare for your planning for college and understanding more about the 529 College Savings Plan.
“The key is saving and saving efficiently.” – Paul Curley, Director of College Savings Research
About The 529 College Savings Plan
The fact is that two million people plan to go to college each year. The escalating costs of college demonstrate a need to save as effectively and efficiently as possible. A Wall Street Journal article by Chana Schoenberger in June 2016 reported that there are 12 million 529 savings accounts totaling in excess of $250 billion in assets to help parents and families pay for college. While this is an average of about $20k savings per 529 account the reality is that this only covers one year of public in-state college costs for student who will live on campus. This demonstrates an important need to get started sooner rather than later to cover the rising cost of college education.
- A Consumer Reports article in July 2016 reported that 42 million people have student debt totaling over $1.3 trillion, an average of over $30k per student
In This Episode You Will Learn
- guidance for listeners who may be interested in understanding if Emory would be a good school for them
- the main reasons that saving for college is important and when families should begin
- what a 529 Savings Plan is and some of the benefits of this savings vehicle
- things to consider when choosing which 529 Savings Plan is the right plan
- things to think about when deciding which investments to buy within the 529 Savings Plan
- other advice for families considering saving for college
Helpful Links And Resources Mentioned
529 Dash is an e-newsletter, required reading for your 529 education. The industry’s leading weekly e-mail newsletter addressing the specific needs and concerns of advisors who sell and service families and institutions in the college financial planning process by providing industry relevant news, as well as the latest trends from our proprietary research. Subscribe to the 529 Dash e-newsletter
You can also check out past blog articles on Hired Graduate:
Hired Graduate Podcast Transcript 1/31/17
JASON HILLIARD: Hi. Welcome to this episode of the Hiredgraduate podcast. I’m your host Jason Hilliard and today we will be interviewing Paul Curley, the Director of College Research and Strategic Insights in Boston, Massachusetts. A strong advocate of saving for college and using a 529 college savings plan as a vehicle to planning for college. Now for those of you who don’t know, the “529 Savings Plan” was introduced over 20 years ago and it’s well the most popular college savings vehicle available to those that plan to send their children to college. A Wall Street Journal article by Chana Schoenberger in June 2016 reported that there are over twelve million 529 Plan Savings accounts totalling in excess of $250 billion dollars of assets to help parents and families pay for college. While this is an average of about $20,000 of savings per account, the reality is that this only covers one year of public in-state college costs for students who live on campus. This demonstrates an important need to get started sooner rather than later to cover the rising costs of college education. We are fortunate to have Paul Curley on the line, a graduate of Emory University and the current director of college savings research who has taken time out of his schedule to talk savings. So Paul, thanks for stopping by and welcome to the show.
PAUL CURLEY: Thank you Jason. I appreciate it and look forward to today’s conversation.
JASON HILLIARD: Sure, great! I see Emory University is a highly selected private University in Atlanta, Georgia with nearly fifteen thousand students, I looked up that about eight thousand undergraduates and seven thousand graduate and professional school students. So tell me, what was it like attending Emory University?
PAUL CURLEY: Coming from when I was there, it’s a great school, and great weather especially during the winter. I found that a lot of students were driven students. One of the great back stats, is that over 90 percent of graduates go to grad school within three years of graduating from undergrad so, other students were pretty driven forward like achieving in the long term career goals and focused. It was a great school, great location, great outside of the suburbs of Atlanta, so lots of opportunities for internships in the session. We had great food and I think there’s an innate element where there’s a lot of graduate schools there as well. But, sort of like you know allowed there to be a pretty good student body in terms of focused and higher education. So, great school, great people, great professors and I enjoyed it.
JASON HILLIARD: Awesome. That’s great and I’ve heard good things about the school. What good advice or guidance will you give to folks who’s interested in going to Emory and whether it will be a good school for them?
PAUL CURLEY: Yeah and obviously, do a campus visit when the school is in session. It provides a lot of insights but I think looking at the academics in terms of there being a fit academics, financial and personal. I think there’s a lot of good vibes that one will learn while there and so like driving your pamphlet of topping schools. I think that those pieces also help to bring it into the bigger picture as well. Yeah, definitely visit the Campus, and for those living up North try and visit during the winter time.
JASON HILLIARD: Exactly right. So that will definitely be an added benefits for those that have endured a lot of winters. I come from Nebraska and the idea of being in the South/South East definitely is appealing especially this time of the year. But yeah, I would imagine Emory being a highly selective school that students are pretty well diversified, coming from all the different states, different countries. I am sure you had people from all over coming into the school. That was probably pretty neat experience.
PAUL CURLEY: Yeah, that’s very true. It was a very national school. It tried to be a national and international and a lot of great backgrounds and very diverse on a number of different angles. That is a very competitive school and great professors and very driven student body, so great school and I was very happy to have attended undergrad.
JASON HILLIARD: Awesome. Well good, I think we’ll shift gears over to the topic of college savings. One reason I wanted to get you on was excited to have the conversation with you based on your role and what you do as the Director of College Savings Research and Strategic Insights. What would you tell an audience of elementary school families are the main reasons that saving for college is important and when do you think that families should begin?
PAUL CURLEY: Yeah. Very timely topic and not a day, not a week goes by without hearing more and more families talking about student loan debt. For many families, there’s so much focus on getting their children into college but very little is said, and little talk about how they’re going to pay for college and at times it doesn’t take place until the bill arrives in the mail, or by email nowadays. That strategy doesn’t work until we see that that has resulted in the growth in student loan debt and I’m always happy to help raise awareness and understanding on education, on the need for call for financial planning and that’s why we’re here today. I think the biggest advice is just to save now or pay even more later. Well, all too often people say that a dollar saved now is a dollar saved later but it’s really a dollar saved now, it’s always two dollars later, you know once you pay the principal back, interest and so it really is multiple reset overtime. Save early, save often and have more options to sending your children to school now.
JASON HILLIARD: Yeah and what you said is true. I know that, I think it was an alarming article written by the Consumers Report last summer about the drastic effects that college costs and having student loans to support those costs are having on individuals. I think it’s fair to say that it has become an epidemic in some circles where students having debt to the point of the dollar becoming two dollars. So a student loan if I think I understand it right from that article. If I have $30,000 dollars of debt. And I’m using that number because I think that $30-40,000 is the average amount of debt that students have today, coming out of college and that number is going up at a pretty good rate just based on the current cost of College on an annual basis. But if I say $30,000 dollars is what I have coming out of college as debt, as a loan that needs to be paid then it’s likely that I’ll pay back $50-60,000 dollars total. So covering that $30,000 plus there’s interest and interest fees, and a lot of students defer payments and based on a lot of different payback options available to students, it extends that payback period and when you do that, you basically are at the sacrifice of a lot of fees, interest expense that starts to grow and all becomes part of that equation. So, that definitely resonated with me as I read that article.
PAUL CURLEY: Yeah, Couldn’t agree more on that. In one of the items that people just don’t realize until it’s too late is that student loan debt is nearly impossible to disperse in bankruptcy court and so if you’re a co-signer of a student loan, even if the student can’t or doesn’t, that parent is still liable to pay it back. So, it’s very important to get rid of that as soon as possible, not just for the paying off the interest rate faster but people don’t realize that until it’s too late.
JASON HILLIARD: Yeah. You’re right and I think even too late is maybe they’re not all way through college, maybe a junior or senior and they’ve had this kill mode of loan kind of effect happening and at some point, Mom and Dad or some family member realises “I just can’t keep co-signing on this loans” and because the rate of drop-out for colleges has increased also at a pretty high rate. So I think that upfront planning and upfront financial affordability, having the money saved will certainly eliminate or at least mitigate that risk that you’re going to need more money later and you’re going need more loans later, so kind of brings us back to the next question. What is, Paul, the 529 Savings Plan and what are some of the benefits of this savings vehicle?
PAUL CURLEY: Yeah. 529 policy plan is a tax advantaged savings vehicle that typically does have a state tax deduction good for, deductions or credits on the contribution. So, currently over thirty states have deduction on credits on the amount contributed into the account, the account grows tax free and distribution when they qualify for higher education. Chances are used for, are also dispersed also tax free. In that case, you have a great tax benefit but a little piece is that 529 plans have great benefits in terms of the way tax, financial aid application applies within a 529 account versus a money market account or with just a bank account. So accessing 529 plan invites the parent for the benefits of the student increases the accepted contribution by, up to 5.64% of where that same money is essentially being held in the students name will be 20%.
JASON HILLIARD: Yeah, that’s important too because in what you’re speaking there is that whole riddle when you apply to college it is not just filling out the application to get into the school which has its own selection process. You know, what was your GPA, what were your test scores and what extra-curricular activities did you do? But there’s this separate free application for Federal students aid and that is the financial aid form where the school does look at your financial situation. This is a huge component of addressing what college will I go to or at least it should be. So I think to your point, that 529 plan if owned in the parents name for the benefit of the student is the right way to hold that 529 or a way that will reduce that and make more available money through the financial aid process. More possible merit aid, more possible financial aid. Okay, great. Well, in terms of the 529 plans, a lot of people are not exactly certain what to do. First of all if I’m going to save money for college, I can throw money under my mattress, I can open a savings account and start making deposits, I can give it to my uncle Tom who knows what to do with money, I can put it in a formalized 529 plan. How do I go about finding the right plan, like creating a 529 plan? How am I going to get this started?
PAUL CURLEY: There’s two different responses to that, it really depends on your own personality type. There first is to confirm if your state provides the state tax incentive for using your own state plan or if it’s solely for your plan or if it’s any state 529 plan. So check with your state, see if they have a state tax deduction that you would or could get. The second response is really gets down to more personal finance like part-psychologist, part sort of like-life coach. It really depends on what’s easiest, it’s sort of like “which gym should I join? Should I join this one, should I join that one”. Whichever savings vehicle you will use, some of them do provide, I believe Fidelity for example provides a cash back into a 529 account. You know or perhaps you have a lot investment currently with a certain firm that could also be another source for you to go and see if they offer a plan. Sometimes if you work at a financial adviser inquire with them, if your employer offers a plan then you can check with them as well. But the truth be told some people find it easier to confirm that you have your retirement access with for example. You could even ask your bank, the bank can set up a 529 plan for you as well. So I know that’s slightly one direction that you may be looking for but it really comes down to checking your state plan to see if they offer a free tax deduction and whatever will allow you to get under and keep going. A lot of times I have to go with finding out who were you’re currently doing business with, setting up a monthly contribution, $50 dollars a month may not sound that much to begin with but over time, over 18 years that does add up.
JASON HILLIARD: Yeah, definitely does and I think there are financial calculators out there online where you can do that math, where you know that $50 dollars a month compound interest and return, starts to really show that that money becomes bigger. I started a 529 plan for my children, both of them when they were fairly young and that money is, we’ve had the benefit of a good market scenario since 2008 to where we are now, with the Dow topping over the 20,000 mark. So I think when you get your 529 plan and have an administrator of the plan you still have some decisions to make. This is I think where guidance is helpful in terms of what investments do I pick within this as a plan. There’s Age based funds, mutual funds, might be some index funds. What would you advise somebody that’s trying to figure out if I’m putting 50 dollars a month or 100 dollars or 500 a month depending on how long the child has until they need, until they are headed to school. But if they’re just born today, they’ve got 18 years and you’re going start a 100 dollars a month. How would you advise on trying to figure out which investments to pick within that fund?
PAUL CURLEY: Yeah and I agree. A lot of it comes down to the analysis paralysis, or sifferent types of barriers that people perceive. The most important and critical factor is that you save and save efficiently and that starts the process. That being said, based on our own analysis, we feel that 50% of the access are going to the age based tracts and just of like, if one thinks about the longevity of 18 years, then a lot of families like they use the age based track will rotate how allocations are comprised over time. But that being said, I truly believe that save and save efficiently will get you a lot farther than like over-analyzing. I think it is sort of the onus is on the parents or the employer to decide the investments. It’s currently 66% of the assets in the accounts are Aged based funds so that may be a good guiding post for some families.
JASON HILLIARD: Yeah, that’s great. Good tip there and I think what I got from your responses is the key to savings is STARTING and just go ahead and start and I think I heard another part of your answer in that it’s a consistent thing. You want to do, almost automatic and that will probably be a great way if you had it tied to a pay check or a day of the month where you had a certain amount of money directed to investment. The 529 plan will probably be a good strategy because then you get the good benefit of Dollar Cost Averaging and letting that money grow over time and let it work for you.
PAUL CURLEY: That’s right.
JASON HILLIARD: Awesome! Okay we’re good. So in the other advice, you would have for families that are considering college in the future one day for their children, and how to get started and what would you say there?
PAUL CURLEY: Yeah. The first one will be to say that less than half of one percent get full scholarships. The real story is that less than half of that one percent get the full ride. That needless to say regardless of the types of hurdles, you definitely need to save and things can be as simple as getting your credit card that would put money into your 529 account. Yeah, I think there’s roughly five different plans on top of mind that do have one, that’s a good way to just start by saving small whether it’s one or two percent and then once you have an account, once you regulate in putting money in, then it, the current station rotates through that family goal. I know for me we have an entire toy room, the toy room is quite large and getting filled out and like we need more toys. So I’m sure it’s great for one or two months but to spend next holiday seasons or birthdays or what, it may be asking for 529 contributions during that time periods is another way to go. Also just generally, just getting the family involved for this family goal. It’s a couple of degree touch points, the scholarship, the credit card payment, the gifting aspect adds to the family goal.
JASON HILLIARD: I think you mentioned maybe in email, a little about the Got college financial planning get educational campaign, you want to talk more on about that?
PAUL CURLEY: Well, sort of like your take on Got milk was like, there’s so much focus by family, my family included just like getting into the right school, not just college, the right college. So much focus and my time and effort into being focused on that and just sort of like that campaign raising awareness to need to understand to financially prepare for college. Over an 18-year period as opposed to like okay “my son or daughter is in junior high school, let’s start applying.” Okay I guess we should start thinking about how we’ll pay for this. Getting that public awareness out there in terms of the need to efficiently save and pay for college because I think at some point, some people think that we’ll get to a breaking point or boiling point, in terms of some just graduating with too much student loan debt and too much of the pushing the shoe down the road. The earlier we can start College financial planning story, the earlier the better.
JASON HILLIARD: That’s great. I think it sounds like a great campaign and a good cause and I think that education is huge and such a human condition. I think it’s that way because “I have time, I’ll get started, Johnny is in kindergarten and I’ll have time to save later” and later it comes because life happens and so, you can be like you said “Kids are in high school and Oh my gosh I better start saving now”. I’ve seen people end up in that reaction, knee jerk mode “I could have started this earlier”, even at this point of 50 dollars a month if you start. But I think it’s an exciting thing to see money grow and it has been for me when you see those statements and returns market that really starts to compound that money. So if I have a thousand dollars invested to know that it’s worth two or three thousand now, that’s your money working for you. So that and there’s a tax benefit of it, that you can use it without a tax consequence as you use it. So I think that’s a pretty neat thing. So, how would you say people are more interested in learning about 529 plans, can we find out more information, you have a website that we can turn people to?
PAUL CURLEY: Yeah, my website is 529insiders.com, you can also connect with me on Twitter @paulCurleybc, that’s my handle. Jason, I know it’s on your blog as well, what’s your blog?
JASON HILLIARD: www.HiredGraduate.com and I will have show notes of the episode on the blog, will also have links to the different articles and topics that we referenced in the conversation today, so I’ll have a transcript, a lot of good information for people. So Paul anything, any other information you want to share out there, I’ve got your twitter handle and the website and I think that was real good. I think you mentioned too there’s an e-newsletter, that will be available for people too?
PAUL CURLEY: Yeah, there’s a free e-newsletter, it’s called the 529 dash. It may be easiest to google that one. 529 dash e-newsletter or go to www.529conference.com/subscribe.html. Either one should work and the most important thing is to save and save efficiently, 529 will help you save efficiently from a tax financial and fit planning prospective.
JASON HILLIARD: Awesome. Great Paul. I definitely appreciate you taking the time out for stopping by today. We really wish you the best.
PAUL CURLEY: Thank you so much.
JASON HILLIARD: Okay, thanks.