The sputtering economy is continuing to take a toll on college savings, but Section 529 college savings plan officials remain upbeat.
The sputtering economy is continuing to take a toll on college savings, but Section 529 college savings plan officials remain upbeat.
Gross sales for such plans dropped 15% from the first to the second quarter, from $2 billion to $1.7 billion, according to data compiled by Financial Research Corp. of Boston.
While a sales decline for 529 plans is normal between the first and second quarters, this year's drop-off "was intensified by investor uncertainty about the securities markets," according to a statement by the Washington-based College Savings Foundation, the 529 industry trade group that released the data.
Its chairman, Kevin McMullen, remains confident, however, noting that 529 sales typically rise in the fourth quarter and the first quarter of the following year.
"We hope to see that trend continue this year as well," said Mr. McMullen, a counsel for State Farm Mutual Automobile Insurance Co. in Bloomington, Ill.
But recently published studies (InvestmentNews, Sept. 8) as well as internal industry research strongly suggest that current economic conditions are having a direct effect on parents' ability to save for college, with many citing day-to-day expenses as a barrier.
"It indicates how families are struggling," said Jeff Troutman, vice president of college planning for Fidelity Investments Institutional Services Co., a unit of Boston-based Fidelity Investments. "A lot of families are looking at how they're going to pay day-to-day bills."
Nonetheless, Mr. Troutman said he also remains optimistic about college savings."We're seeing more parents trying to save earlier," he said. "And that bodes well in the long run for the whole industry."
"The reductions in contributions should not be surprising to anyone," said Jim Lynch, a trustee for Alaska's 529 program, the Fairbanks-based Education Trust of Alaska. "It is no different than retail investing or consumer spending. The price of food and gas, along with recession talk, has simply polarized the consumer."
But priorities of families saving for college haven't changed for the long term. "Our goal is to maintain the focus on the need and aspiration to obtain an education," said Mr. Lynch, vice president for finance at the University of Alaska Fairbanks.
What's more, he said, participants in Alaska's 529 plans who use automatic regular deposits "have done much better at maintaining contribution levels."
Meanwhile, some 529 programs are trying to lure savers with more investment options and lower fees.
DECREASED FEES
Beginning next month, the administrative asset fee for the Salt Lake City-based Utah Educational Savings Plan will decrease 12% to range from 0.22% to 0.34%, and the annual administrative maintenance fee will fall 25%, from $20 to $15.
In addition, investors in the fund will be able to invest in two international equity funds: the Vanguard Institutional Total Stock Market Index Fund and the Vanguard Institutional Developed Markets Index Fund, from The Vanguard Group Inc. of Malvern, Pa.
The Utah plan does not require a minimum balance or contribution, said Lynne Ward, its director.
She said she hopes those features, in addition to lowering fees, will help induce families to keep saving for college despite having to spend more of their income on "basic needs."
Ms. Ward also is urging the 529 industry to consider a Christmas marketing campaign promoting contributions to a 529 college savings account as an alternative to a Christmas gift. "It would certainly be seen as more valuable than just another toy," she said.
And Mr. Troutman stressed the need for more education about 529 plans to stimulate contributions to college savings. He pointed out that many families think that a 529 plan will have a negative effect on their ability to get financial aid."That's not true at all," Mr. Troutman said. "We have to do a better job."
E-mail Charles Paikert at cpaikert@investmentnews.com.
