How Much Are Families Saving for College?

Julie Shields-Rutyna: [00:00:00] We do. And this is exciting. I'm excited about this. So after many months of preparation, MEFA is pleased to announce that UFund gift of college cards are now available at CVS locations across Massachusetts.

Jonathan Hughes: Yay! Let's stop for a minute and applaud for that, because I know this is a long time in the coming. What is this, and why is this such a big deal?

Julie Shields-Rutyna: Sure. It's a, these are essentially gift cards. I think everyone, you know what this is. When you go into CVS, and that there are racks of gift cards that you can purchase for things like restaurants, video games. stores. And you will now notice that ours which are the gift of college cards, will be in locations across Massachusetts, right amongst all of those other cards.

And so you can purchase a MEFA U Fund branded gift card in amounts ranging [00:01:00] anywhere from 25 To 200 and then you can give that as a gift to a prospective parent, a parent or a child for a birthday, a graduation or any other occasion that you'd like and then the money can be redeemed.

Jonathan Hughes: Hi everyone and welcome to the MEFA podcast. My name is Jonathan Hughes.

Julie Shields-Rutyna: And I'm Julie Shields-Rutyna.

Jonathan Hughes: Ah, it's good to be back with you, Julie.

Julie Shields-Rutyna: I know. Good to be back.

Jonathan Hughes: Alright, we are deep into September, which is College Savings Month, and so today we have a show that is packed full of good stuff for parents and anyone else who may be saving or thinking of saving for a student.

A little bit later on you're going to hear my interview with Anthony Durkan. He is the Vice President and Head of 529 Relationships with Fidelity Investments. [00:02:00] Fidelity, of course, is a very valued partner of ours as they manage both the U Fund, Massachusetts 529 Plan, and the Attainable which is the Massachusetts Able Plan, or 529A Plan.

So Fidelity, in addition to being deeply involved in this world of 529s they do a survey every year. about how America saves for college. And so we are going to be going over their findings from that survey. So you want to stick around for that. But before we get to that, we actually have some big college savings news to break ourselves, don't we?

Julie Shields-Rutyna: We do. And this is exciting. I'm excited about this. So after many months of preparation, MEFA is pleased to announce that UFund Gift of College Cards are now available at CVS locations across Massachusetts.

Jonathan Hughes: Hey, let's stop for a minute and applause for that because I know this is a long time and in the coming. So what [00:03:00] is this and why is this such a big deal?

Julie Shields-Rutyna: Sure. So it's just, these are essentially gift cards. So I think everyone, you know what this is. When you go into CVS and that there are racks of gift cards that you can purchase for things like restaurants, video games, stores, and you will now notice that ours which are the gift of college.

Cards will be in locations across Massachusetts, right amongst all of those other cards, and so you can purchase a MEFA U Fund branded gift card in amounts ranging anywhere from 25 to 200, and then you can give that as a gift to a prospective parent, a parent, or a child for a birthday, a graduation, or any other occasion that you'd like, and then the money can be redeemed.

Jonathan Hughes: And then it's put into a U Fund for the student. Is that the idea?

Julie Shields-Rutyna: It is. So the idea is, someone would take that [00:04:00] and then the the recipient would put that into a U Fund. But people have other options, too. Of course, the U Fund is our Massachusetts 529 plan. But it can also be invested in Another college savings account, any of them really across the country, like any other 529 plan, which includes the U fund.

But also, MEFA has our U plan, which is our other savings program. And it can be. put into that prepaid tuition plan. It can also be used for an ABLE plan. So if someone has an ABLE account, you can put it in there. Or, this makes it so flexible, it can also be used as a payment against a student loan.

People could always give a gift Of putting some money into a U fund for someone like for a baby shower. But the way it worked is they would, there's a gifting page on the Fidelity [00:05:00] site and the owners could set that up and then other people could get an email link and then put money in that way.

That was great. It worked. But, this is just so much easier and. Most people walk into a CVS sometimes and I know if I'm going to a baby shower I'm always walking into a CVS probably to pick up a card and then you can pick up a gift card right there. It just seems so easy and like something most people would find in a CVS.

Easy to do to be able to show up with a gift in hand. And so that's why, people have been asking for this. And I just think this is such a nice option.

Jonathan Hughes: For sure, for sure. I know they've been asking about it. And speaking of somebody, I tell the story all the time when I opened up my first youth fund account for my nephew my sister's son.

And it was hard because I had to get social security numbers from her. I had to do all these things. It really makes it much, Easier to give [00:06:00] as a gift this way. And so I was thinking about this pretty much through that 529 U Fund lens but I was really excited about the other uses.

I didn't know that was going to be a possibility talking about the U Fund the U Plan that is and the ABLE plan and the student loan plans, so if you could tell me a little more about that?

Julie Shields-Rutyna: Yeah, and this seems like an easy gift to give to parents of children who want to save for college. Also, as I mentioned, expecting parents might be just giving that little nudge to a parent who maybe hadn't thought about that because they're thinking about so many other things when they're about to have a baby. But then the fact that you could give it to a college graduate who could use it to pay off some of their student loans and to give it to someone Who is a person with a disability who has an ABLE account that you could put it right in there and so that's, I think, again, the [00:07:00] flexibility and the many uses make this so great.

Jonathan Hughes: Yeah, and just in case anybody missed our August shows about ABLE plans, can you just briefly describe what that is?

Julie Shields-Rutyna: Absolutely. ABLE plans are like 529 plans in that they function in a similar way. Money is invested in a market, grows tax deferred, and can be then used tax free.

For qualified expenses now with 529 plans, we know qualified expenses are qualified educational expenses, but with able actually, the qualified expenses are a little bit broader. So able plans are for individuals with disabilities and can be used for things like, health expenses, education, assistive technology, et cetera.

Basic living expenses, transportation. So anyone who has an ABLE account can use it in many ways and not pay taxes on the earnings. And so to have someone be able to gift into that is, is really nice as well. [00:08:00]

Jonathan Hughes: Yeah, so before we move on to the next part of the show, since I have you here you are the parent of two pretty recent college graduates, right?

And if somebody needed a little nudge in the direction of giving this as a gift or starting to save in a 529 plan, what would you tell them?

Julie Shields-Rutyna: Yeah, I would just say that having Saved and when I say saved, I wasn't as if I saved every penny for either child, but having saved in both the U Fund and the U Plan because of course I work at MEFA, I wanted to try both was, made a huge difference when it came time to pay those college bills.

Just when my children were deciding on what college they were going to go to and I was, looking at that first bill, just knowing that I had a good amount of savings at that point lessened. My stress about paying for college so much. We applied for financial aid, both [00:09:00] kids received a little bit of financial aid.

And we used it, we used a lot of strategies, but having the savings really took the pressure off all of the other ways that that we were going to pay. And I guess what I'd also say is that I actually didn't start saving for my kids when they were Just born or babies because there weren't as many things in place to make it.

Is easy to do that or it wasn't hopefully we've really promoted saving for college over these last number of years. And so I think something like this gift card just makes it very easy for people to open an account early and let other people help them save with gifts over the years and things like that.

Jonathan Hughes: Julie, what do you think about a mailbag question?

Julie Shields-Rutyna: Of course.

Jonathan Hughes: All right. So let's head to the MEFA Mailbag. And these are questions that have come into us over the past weeks and have been answered by our college planning team. Now, remember, if you have any questions, you can email us at [00:10:00] collegeplanning@mefa.org. You can call us at 800-449-MEFA, and you can also reach us over social media on Facebook that's @MEFAMA, on X it's @MEFATweets and on Instagram, it's @MEFA_MA. Now, of course, I had to make this a 529 question because I wanted to be thematic here. Our question today comes to us from Jessica, who writes, What is the difference between an individual 529 account and a custodial 529 account? Julie, can you tell folks when they would see that question and what the difference is?

Julie Shields-Rutyna: Yes, so when you go online to open a U Fund account with Fidelity there's a nice, fairly, easy application there. Early in the questioning, after the demographic information, it will ask you, do you want to open an individual account or a custodial account?

And honestly, most of the time, you're going to just pick an individual [00:11:00] account. That's That really is mostly when someone is opening a new account, that's what you're going to pick and that the only time you would pick a custodial account is if you had another type of account that was a uniform gift to minors type of account.

And you withdrew money from that which had to be used for the student who was the beneficiary and couldn't be changed. So that's a stricter criteria than a regular U Fund account. So if you had that type of account, you withdrew money and you wanted to change it. Put that into a U Fund account. That would be a custodial U Fund account.

And it would be just like any other U Fund account except for one difference. You could never change the beneficiary. So that's the one additional restriction for a custodial account. But again, when you're going on to open a UFund account, you're mostly choosing [00:12:00] an individual account.

Jonathan Hughes: Alright, Julie, thank you One more time. If you have questions, you can email us at college planning@mefa.org. You can call us at 800-449-MEFA. Our Facebook is @MEFAMA, X @MEFATweets, and Instagram @MEFA_MA. Just to remind everyone, we have a bench of college guidance experts that are waiting to answer your questions.

If you could just start by giving us your name, where you work and your title and how long have you been doing that?

Tony Durkan: Yeah, Tony Durkan from Fidelity Investments. I I'm the team leader for the 529 Managing Director Group. I've been with Fidelity now. It's, today's my anniversary as a matter of fact.

I just learned. This will be my, I'm in my 23rd year at Fidelity.

Jonathan Hughes: Oh, congratulations.

Tony Durkan: Yeah, thanks.

Jonathan Hughes: Can you just explain [00:13:00] briefly, in case anyone doesn't know, how MEFA and Fidelity work together?

Tony Durkan: Yeah, so the foundation of it is, all 529 plans have to be sponsored by the state. And in the case of the Massachusetts MEFA was created to sponsor the program and they we were fortunate they chose Fidelity to become the program manager for their 529 plan, the UFund.

Jonathan Hughes: It's been a long and happy partnership.

Tony Durkan: Continues to evolve and continues to grow. It's been great for sure.

Jonathan Hughes: Yeah, certainly. And to that end, you're here to talk to us about, so something else that you do, which is Fidel Fidelity's college savings indicator report, right? And that is released was released earlier in the summer. Can you tell everybody what that is? Did I get the name?

Tony Durkan: Yeah. The college savings indicator, or we shorten it up to say CSI survey. So [00:14:00] what we do, Jonathan, every two years we do a nationwide survey and we do a Massachusetts.

Abbreviated Massachusetts version of that really the purpose of the survey is to just get an understanding of how people are thinking about college costs, vehicles to use to save for those college costs. What is a 529? How does it work? What are the advantages? It really gives us a good sense of people's mindset on how they feel about saving for college.

And saving for educational expenses.

Jonathan Hughes: And what does this year's CSI tell us?

Tony Durkan: One of the, one of the big revelations was more people are saving now for college than they have in the past. And I don't have the exact numbers in front of me, but when we started the survey back in 2007, I think that number was around just north of 50%, might have been around 53.

And what we found [00:15:00] now is it's over 72 percent of our savings for college. Great great revelation there What we're also noticing and this is actually the past two studies The indicators are showing that people are prioritizing college savings ahead of retirement savings, which Hello, a lot of people ask, how can that be and you know You Given the environment that we're in, we're hearing a lot about student debt crisis, student loans and, generally speaking, the rising cost of inflation.

That's really driving the conversation for parents to say, we really need to think about college savings and education savings even more.

Jonathan Hughes: Yeah. And so that was actually an answer to a question I was going to ask you about the increase in saving for college since it's gone up from just over 50 percent to 72 percent in the intervening year since you started the study. Do you think that is a response to, Those outside factors or does [00:16:00] awareness start to grow that as well?

Tony Durkan: Yeah, I think, the certainly the different topics of conversation are gearing or slanting towards, college and in good way, I, even with the rising cost of college, what we did find parents still believe there's a value.

And saving for college and going to college. And there's still value in getting that education and getting that diploma and leading to successful outcomes, in the job market. Yeah. A lot of factors that you mentioned. Sure.

Jonathan Hughes: That, that is something that really jumped out at me because this has become a big topic, people's attitudes about college and whether or not college is worth it. So it was really interesting to see that a lot of parents still do think it's worth it and worth saving for.

Tony Durkan: Yeah. The other part of it is. We talked about inflation in one in four parents do think inflation is a primary barrier to saving for college and saving for anything really managing long term savings with day to [00:17:00] day expenses It can be a daunting task. I think we all experienced that, right?

Jonathan Hughes: Is that something that you've seen? I imagine it is, but is that something that you've seen spike in this recent CSI?

Tony Durkan: Spike would, can you elaborate on that?

Jonathan Hughes: That is, yeah, the role of inflation.

Tony Durkan: Yeah.

Jonathan Hughes: And that being a primary impediment to saving for college.

Tony Durkan: Yeah. It serves, it's almost a double edged sword serves, two purposes. Like it does create some challenges to parents saving and saving in general. At the same time, because they still value and believe in the value of a college education. They do want to save and they're, they are finding ways to do that.

Whether that's, they're saving obviously their own money. There's some dynamics now with gifting, which is getting a lot of traction where, parents can reach out to family, friends, grandparents. On that birthday, rather than getting a toy they'd much rather see gift or towards the 529 [00:18:00] plan.

And that is really gaining a lot of traction. The gifting. We're seeing that we're seeing a big uptick there.

Jonathan Hughes: Can you talk about what parents know about the cost of college and how this may impact their savings?

Tony Durkan: Yeah, so it's interesting. What we have found, and this is again, for the past two surveys, what we're finding is parents are guessing.

They don't really know and the goal posts seem to keep moving. And a lot of that is driven by the by inflation. So they're taking their best guess which we, certainly would like to help and mitigate that and get them on a better road. But yeah, it's with the rising cost of call in college, when we talk about inflation, you can think of it in two ways.

There's general inflation that we hear about in the news. What we don't hear a lot about is college, the cost of higher education in that inflation number. What we know is that number has been running higher than general inflation. So it certainly creates a challenge [00:19:00] for a parent to, figure out what that figure is.

Jonathan Hughes: Do we have any idea how they're guessing or what are, do you think that they are guessing based on, press figures of how much it costs to go to college or the most expensive local college. Or I know this may not have been something that was asked about within the CSI but any idea on that whatsoever?

Tony Durkan: Yeah. We do have some, I don't have the figures in front of me but anecdotally, what I would say is parents are basing it on their experience. I think about what the cost of college was when I was going. That number is a lot higher now than it was so we do find parents, they're just using their own basic experience and what they paid without, going into and, maybe we could talk about, the things that can help them get there but rather than looking at, research reports or news reports, they're simply guessing based on their own experience.

Jonathan Hughes: And [00:20:00] using their own guesses, how are they doing in their efforts to save?

Tony Durkan: Yeah. So what we do see is parents do want to save and they do want to help and pay for their child's education. A perfect world, they'd be able to pay 100%. But parents are targeting, maybe I'll definitely pay for a portion of that and then maybe student loans, take over the rest or some grants and scholarships.

What we would advise and what we tell, our participants and, our parents is, first you have to have a plan. Most parents are expecting to pay for at least some of the child's education. But many are not on track to meet the goal.

And that's primarily because they don't have a plan. And, Fidelity, at Fidelity, We can certainly help with that. We do have investor centers that folks can walk into and make an appointment to sit down with a financial consultant and develop that plan.

Jonathan Hughes: What role does communication between parent and student or parent and [00:21:00] child play in this?

Tony Durkan: It helps tremendously. We did find that parents that talk to their children about the costs and about the expectations. Tend to have more saved in the long run than those that then versus those that don't. The other thing we talk about is, you have the plan, you talk to your children about this.

The cost of college, and then you have to decide what vehicle you're going to use. And obviously we would recommend highly the flexible tax advantage 529 plan, such as the youth fund. What the study did show on that aspect is people using a 529 to save for education expenses. Also tend to have more saved and closer to their goal than those that than those parents that don't have.

Jonathan Hughes: I want to go back for a minute to talk about something else that you mentioned earlier, which is gifting. And you've seen that really take off. Can you talk a little bit more about that?

Tony Durkan: Yeah. So one of the great, one of the great advancements that [00:22:00] we've had with on Fidelity's website. We have a gifting tool where you can go in and you basically, you send out an invitation to, your loved ones inviting them to make a gift into the 529 plan. It's very, it's seamless, it's efficient, it's easy, it's intuitive.

And those gifting tools have been great, since the, since we've advanced that and made it more efficient. Yeah, the utilization has been strong.

Jonathan Hughes: Now, let's say if somebody doesn't have a plan yet to pay for college and they're thinking about it. But you know how it is with the parents of younger children, that's not something they need to worry about right now, or maybe they're, they've got some misgivings.

What are some common concerns that people might have when it comes to beginning to pay for college?

Tony Durkan: Yeah, one of the big concerns that we hear barriers to entry is, what if my child doesn't go to college? What if I save all this money they don't go to school or what if I save all this money, they go to school or, they get a [00:23:00] scholarship and, and there's money left over but to focus on the first one, the biggest one is what if my child doesn't go to school, doesn't go to college.

The great thing with 529, the evolution of 529, there's been great advancements in, from a legislative perspective that, that have made 529s more flexible. So it's not just for college education anymore. You can use it for K through 12. You can use it to pay back student loans. You can use it for vocational and technical schools.

And with the most recent legislate, the legislation Secure 2.0. It will under certain eligibility criteria, it will allow the transfer of up to 35, 000 into a Roth IRA. And, as you think about that, that would give the beneficiary, the child, a pretty jumpstart towards retirement saving.

Jonathan Hughes: I know that has been something that is really welcome because you're right. The first question that comes up is what happens if they don't go to school? I have all [00:24:00] this money. I'm going to get penalized if I take it out. There's this other option that you can do that's going to benefit the child quite a lot.

Tony Durkan: Yeah. Yeah. And I try to stay close to, what's happening in Washington. And as we think about legislation, from the past, it has been 5 29 plans. There's legislation now in Washington under review with House and Ways Committee that would further the utilization of 5 29 plans for first certificate programs.

My son is going after his C. F. A. Is chartered financial analyst. Designation if the legislation would pass, he'd be able to use it to offset that cost.

Jonathan Hughes: That's fantastic news.

Tony Durkan: Yeah. Yeah. Welcome. So with the ability to transfer to the prop, that's on the table for him. And we talked about it and I said, why don't you hold off?

Because I knew the legislation. That's pending. Yeah. I said, why don't you hold off? There's no rush. Let's see if this [00:25:00] legislation passes and you'd be able to offset some of the costs for that CFA exams.

Jonathan Hughes: And it's funny. I just spoke with somebody for this podcast, in fact, who was able to fund their undergraduate and graduate programs to completely through aid.

And they're 529s and has money left over and is planning to transfer that remaining amount over to a Roth IRA. So

Tony Durkan: huge, yeah, major advancements. I'll give you another example. It actually works in the reverse. One of my colleagues, his wife is going back to get her MBA. They had saved for their children in their five 29s have left over money. And he came to me and asked, Hey, Tony can I change the beneficiary to my wife and use that to pay for her MBA? And the answer is yes. The interesting dynamic of, the child now paying for the parent, the parents [00:26:00] education. Interesting dynamic.

Jonathan Hughes: So now that everybody knows how great five 29 plans are, they want to sign up for a UFund. How can somebody do that?

Tony Durkan: Yeah, easily visit fidelity.com/529. You'll see the U fund on that landing page and you will have access also to tools and calculators. We have a toll free number that we have a dedicated college planning associates, that can, we talked about, some of the questions parents have we've got the tools and resources that they can help answer all those questions.

Jonathan Hughes: Tony, thank you very much. I love having folks from Fidelity on because we do Have such a great relationship with Fidelity and you are such experts and in this and many other financial matters. So you carry a lot of weight and credibility with you. So it's great to have you on.

Tony Durkan: I appreciate the kind words and, happy to be on. And thanks for having me. This is a great discussion. Love to do it again.

Jonathan Hughes: Okay, thanks, Tony.

Tony Durkan: Thanks, Jonathan. Appreciate it.[00:27:00]

Jonathan Hughes: All right, folks. That's our show. I want to thank Anthony Durkan for being here sharing his time and his expertise with us. Julie, thank you so much.

Julie Shields-Rutyna: You're welcome, John.

Jonathan Hughes: And folks, if you liked what you heard on the show today and you want to hear more from us on planning, saving, and paying for college and career readiness, then you can follow the show and you can find us wherever you find your podcasts.

And please remember to rate and review us. I'd like to thank our producers, Shaun Connolly, I'd like to thank AJ Yee, Lisa Rooney, Lauren Danz, and Meredith Clement for their assistance in getting the show posted. Once again, my name is Jonathan Hughes and this has been the MEFA podcast. Thanks.