William Penn Life, 2018 (53. évfolyam, 1-12. szám)
2018-01-01 / 1. szám
Moneywise with Bob Bisceglia, National Sales Director How to save for college 529 plans vs. whole life Insurance HAPPY NEW YEAR ALL and welcome to 2018! In the November issue of William Penn Life, we saluted our annual scholarship recipients and announced the application process for the 2018 scholarship grants. With that thought in mind, I thought I'd start the year off with a discussion on some of the best ways to save and pay for your child's (or grandchild's) future college costs. If asked, I'm certain that the parents of this year's scholarship recipients would tell you about the rude awakening they had as their child began the college application process. They'd tell you that while they were busy establishing their own careers and raising their children, college costs increased. A lot. Since the 1999-2000 academic year, when most of today's college freshman might have been born, the average tuition cost at a public four-year college has more than doubled. And, if we go back to 1978 when many of today's "baby boomers" (such as yours truly!) were undergraduates, we'd see that the average cost of a higher education has seen a 1,300% increase over that time. As college costs continue to climb, it's becoming harder each year to afford a quality education without taking on a huge amount of debt. And rising tuition costs are just one reason for this mounting debt. The other culprit is the increasing cost of student loans. Interest rates on Stafford loans increased to 6.8% in 2013, doubling the rate of loans taken out before 2013. The impact of that increase is already starting to take its toll on today's graduates. The Institute for College Access and Success's Class of 2015 Report found that 68% of new graduates had some level of student debt. The average debt of those graduates was just over $30,000. Nearly 20% of that group's debt was in the form of private loans, which are typically costlier and provide higher interest and repayment options than their federally-funded alternatives. Sadly, that $30,000 number will only increase for future graduates who begin college with the Stafford loan rate at 6.8%. For many of today's graduates, the total cost of their college loan could easily double or triple the overall costs of their tuition, room and board and miscellaneous expenses. They are, in effect, paying for two or three college degrees but receiving only one. Given the increase in interest rates, people are less inclined to borrow money for college today. According to the College Board, the amounts that undergraduates have borrowed has decreased for the fifth year in a row. College borrowing has decreased nearly 20% over that time span. So, if people are borrowing less, how are they paying for the increasing cost of college? The most common answers are private funding or 529 college savings plans, which are the most popular savings vehicle that parents use to save for their children's education. Lately though, a relative newcomer has entered into the college savings mix: whole life insurance. Since whole life insurance has been around since the 1800s, it's hard to call it a "newcomer," but it's a newcomer in the sense that it wasn't often thought of as a college-savings vehicle. Whole life insurance has become a very popular way to save for college, giving today's parents two strong options to consider for funding future college expenses. Let's look at the pros and cons of each. First, 529 plans. College savings plans (commonly referred to as 529 plans) have gained acceptance in the last few years, especially since college expenses have out-paced the average American's salary increases. Here are some of the pros of the 529 plan: • Earnings are tax-deferred and exempt from federal and state income taxes when used for "qualified" higher education expenses. • Friends and family can contribute to a 529 plan. • The beneficiary can be changed if the primary benefi-4 0 January 2018 0 WILLIAM PENN LIFE Photo © Can Stock Photo/mcgill
