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The Heartbreak of Student Loan Debt: How 529 Plans Can Help

The Heartbreak of Student Loan Debt: How 529 Plans Can Help

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With Valentine’s Day upon us, many adults are looking for gifts for the children they love. Whether a parent, grandparent, aunt, uncle, or family friend, finding just the right gift for a child so soon after the December holidays can be challenging. Rather than adding yet another stuffed animal or toy to their growing collection or giving a Valentine-themed article of clothing that may be quickly outgrown, gift givers may prefer a more meaningful option that the children they love can benefit from for years to come.

There’s one gift in particular that can help young ones be better positioned to pursue their future academic and career dreams: a contribution toward a 529 college savings plan account. Named after Section 529 of the Internal Revenue Code and offered by nearly every U.S. state, these easy-to-use and tax-favored investing plans can help families minimize or avoid the heartbreak of student loan debt.

With approximately 44 million former students struggling to repay over $1.6 trillion in outstanding educational debt, and with an even greater stress on women who typically have larger student loans than men, there’s every reason to consider a gift toward college.

Here are five ways 529 plans can help future students and their families have brighter educational and financial outcomes.

1) Tax-free growth and tax-free withdrawals.

529 plan investments grow tax deferred (meaning, unlike other forms of saving and investing, the earnings are not subject to tax as an account grows) and the earnings are never be taxed as long as withdrawals are used for qualified higher education expenses such as tuition, fees, room and board, books and supplies, or even computers. And on top of the favorable federal tax treatment, over thirty states offer a tax deduction or credit for 529 account contributions. Less tax means more available money for college!

[Related: It’s Time to Get Serious About Educating Women Around the World — The Economy Will Thank Us]

2) Versatility.

529 college savings plans can be used at a wide range of post-secondary schools across the country -- including two-year or a four-year colleges, trade and technical schools, professional and graduate schools, and so on. As a more recent development, certain expenses associated with registered apprenticeships are also covered. And beyond this, these plans can even be used at certain international schools, as well. There are so many places a 529 plan account can take a future student!

3) Flexibility.

If the child for whom an account was originally established chooses not to pursue any form of higher education, the account beneficiary can be changed to another family member of that original beneficiary with no penalty or cost. This could be a sibling, stepsibling, cousin, aunt, uncle, niece, nephew, parent, and so on.

If not needed for the original beneficiary, the money in the account could even be saved and used for the original beneficiary’s own children someday. While there is no time limit in which the funds must be used, this added flexibility provides families additional peace of mind.

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4) Easy for others to contribute.

While it’s easy for account owners to ensure they contribute regularly by setting up payroll deduction or automatic contributions to their 529 plan from a bank account, it’s also easy for others to contribute, as well. In fact, employers of all sizes are beginning to contribute to these accounts as a sought-after employee benefit.

Beyond this, many 529 plans make it easy for account owners to invite their friends and family to pitch in with a simple electronic invitation. For gift givers who are not certain if an account has yet been set up for a particular child and who don’t want to spoil the surprise by asking, there are gift cards that can be purchased online or through retailers around the country that recipients can redeem into most any new or existing 529 college savings plan account.

It takes a village to get a child to and through higher education, and including others in the journey can be rewarding for all involved!

5) Valuable financial education.

Opening a 529 plan account has the added benefit of providing priceless financial education while planning for a child’s future. A 529 college savings plan account can be a great tool to help educate children about planning for the future through small consistent steps. And along these lines, can open conversations about the value of deferring immediate gratification to reach long-term goals.

This Valentine’s Day, rather than spending money on more traditional gifts that are quickly outgrown or discarded, those with children in their life may consider planting a seed for the future by opening a 529 college savings account or contributing toward one that’s already been set up. Every dollar saved is that much less that will need to be borrowed and repaid with interest. And planning for a child’s educational future helps everyone involved avoid the heartbreak of student loan debt.

[Related: Women and Money: Are You in Control of Your Finances?]


Patricia Roberts has helped tens of thousands of families prepare for the cost of higher education through her leadership in nearly every aspect of the 529 college savings arena over the past 20+ years. She has authored a top-selling new release called Route 529: A Parent's Guide to Saving for College and Career Training with 529 Plans, writes for Thrive Global and other publications, and serves as Chief Operating Officer at Gift of College, Inc. You can follow her on LinkedIn and Instagram.

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