529 Savings Plan

Colleges are now offering section 529 plans to recruit prospective students. These 529 savings plans have provided tax benefits to parents for years. Now, private colleges and universities hope to increase enrollment with these plan incentives. The schools are finding the 529 savings plans to be a very effective recruiting tool to increase enrollment.

Hundreds of schools, including some of the top universities in the country, are offering parents and students tuition discounts, prepaid plans with additional incentives and scholarships to put money aside to obtain a college degree.

SAGE Scholars, an education finance company, offers a tuition rewards program as one of the perks associated with the section 529 plans. This program is available for those who participate in the Pennsylvania and Wisconsin 529 savings plans. Nearly every state has a 529 savings plan.

The SAGE Scholar tuition rewards program is similar to a frequent flier program. Quarterly points are rewarded at 1.25% of the total account value. Each point comes from select CDs, 401(k) plans, annuities, as well as the 529 savings plans and is the equivalent of one dollar towards tuition. For the fall 2007 semester, students averaged $6,192 in college tuition savings for four years.

Currently, there are 213 schools who participate in the SAGE Scholar program. Drexel University in Philadelphia and Augustana College in South Dakota are among the schools. Colleges, with account holder permission, have access to over 115,266 high school students' mailing addresses.

The Independent 529 is another recruiting tool used by 274 colleges and universities. This 529 savings plan is administered through TIAA-CREF (Teachers Insurance and Annuity Association, College Retirement Equities Fund). The Independent 529, also known as the I-529, was established in 2003 and works as a prepaid plan which guarantees a rate of return that is above the expected tuition increase.

Some may wonder if participating in these 529 savings plans is really cost efficient. On one hand, they provide parents with the opportunity to save money for college and lock in the current tuition rate. However, college tuition increases every year at an average rate of eight percent. Another possible drawback is that admission is not guaranteed based on participating in the section 529 plans.

Despite the small percentage rate of return, supporters of 529 savings plans believe that parents and students must not rely on financial aid as a solution to paying for college. With a decrease in federal funds for financial aid and the rising cost of education, tuition may become completely unaffordable for most families.

Few public universities offer 529 savings plans to recruit new students. Instead, scholarships are given to students who have 529 accounts. Also, out-of-state account holders are given in-state tuition rates.