Record College Savings: Another Bullish Sign

by Alyssa Oursler | March 20, 2013 12:19 pm

It’s not just Mila Kunis plowing money into stocks[1] that speaks to the bullish sentiment of Main Street regarding Wall Street.

It’s also the increased focus on saving for college.

A recent report from the College Savings Plans Network, a nonprofit and affiliate of the National Association of State Treasurers, showed that average balances for 529 college savings and prepaid tuition plans grew to a record $17,174[2] in 2012 — a 12% year-over-year increase.

For those of you who don’t know, a 529 college savings plan is operated by a state or educational institution and is meant to make it easier for folks to save for college and other post-secondary training for a designated beneficiary, like a child or grandchild.

Holders set aside money and can later withdraw it tax-free, as long as the proceeds are used for approved college costs. The contributions often come with state write-offs, are flexible and have no income limitations or age restrictions.

And most importantly, they encourage folks to plan ahead for higher ed — an increasingly important move considering skyrocketing tuition costs and outstanding student debt[3].

It’s easy to see why 529 savings plans — and the rush back into them — is generally looked at through an educational lens … though it’s a bit more difficult to see at first glance what this has to do with investor sentiment at all.

But an important thing to know about 529s is that the ongoing investment of the account is not handled by the saver, but by a professional — either the state treasurer’s office or by an outside investment company hired as the program manager. Each plan typically offers a range of mutual funds and other investments.

And you know what that means: When the market went down a few years back, so did many folks’ college savings. One man mentioned in a 2009 Wall Street Journal article[4], for example, lost about half of his six years’ worth of college savings for his son.

At the same time, countless investors were reluctant to give the plans a go (or pulled their money out) in the aftermath of the crisis thanks to market-wide jitters. The article noted:

“In the wake of last year’s market collapse and some high-profile fund blowups, some investors — and financial advisers — are paring back their reliance on 529 plans and in some cases are considering alternatives. After tucking some $15.5 billion into 529s in 2006 and an additional $15.2 billion in 2007, investors contributed an estimated $5.2 billion last year.”

Now though, like we said, things are moving back up. The average balance hit a record high in 2012 — thanks, in part, to solid market gains — while total 529 investments also hit a record $190.7 billion. And the number of existing accounts climbed 4%.

That increased focus on college savings is undoubtedly a good thing, as it could help lower the number of students saddled with college debt — a growing problem for the coming generation[5]. But at the same time, that increase barely outpaces the also-growing cost of tuition, which rose 8% at public community colleges and four-year colleges and universities during the same time period, according to the State Higher Education Executive Officers Association.

Instead, more than anything, the trend really speaks to the fact that day-to-day investors are once again comfortable with the idea of parking their money in stocks.

Add that to a growing list of bullish signs — which InvestorPlace Editor Jeff Reeves recently rounded up[6] — and there’s a lot to like. The Dow just recently hit an all-time high, the job picture is gradually improving, the Fed is maintaining low interest rates, a steady real estate recovery is under way, countless buybacks and buyouts have taken place …

The bullish sentiment is everywhere you look — whether for workers saving for their own retirement, or setting aside some green for their kids’ college savings.

  1. Mila Kunis plowing money into stocks:
  2. grew to a record $17,174:
  3. outstanding student debt:
  4. Wall Street Journal article:
  5. a growing problem for the coming generation:
  6. Jeff Reeves recently rounded up:

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