The importance of a college education grows every generation. With tuition and other college costs growing faster than the rate of inflation, the importance of saving for college becomes equally as important as the need for higher education itself. In order to aid families during these trying times, there are a myriad of savings products that they could take advantage of.
Growing Savings Vehicle
Traditional savings options for college spanned from a normal savings account to mutual and trust funds. Now there is an account specifically to encourage and reward savings for education: the 529 savings plan. The “529” comes from the section of IRS code that lays the framework for the plan. Basics of the plan allow distributions to pay for college costs to come out tax-free, with investments that are able to grow tax-deferred as well.
Along with these benefits, the donor is the individual who has complete control of the account. The named beneficiary has no ability to access the funds. Because of this, the donor can ensure the savings are used for the intended purpose.
With these advantages, it is evident why these plans are exponentially increasing in popularity. As of the end of 2005, the 529 savings plans comprise $68.7 billion in assets (Investment Company Institute and College Savings Plans Network). This is an increase from $200.0 million in 1998. Now that all 50 states and the District of Columbia offer these plans and almost anyone can enroll, it is easy to see why they have become so popular.
Slow Adoption Indicates Huge Opportunity
Where do credit unions fall into the mix? With 529 savings plan data being reported for the first time on the 5300 as of December 2006, more light can be shed on this emerging market. Of the 8,536 credit unions reporting, only eight reported offering a 529 savings plan account. These credit unions’ 529 plans totaled $20.8 million, amounting to a market share of 0.03%. Although low, these numbers show there is a great opportunity for credit unions to enter this market.
While it seems like the majority of credit unions are unaware of these plans that could be valuable to members, they are not. Of the credit unions that offer financial advising to members, it appears that many offer to help members in finding a 529 plan that would work for them. While the credit union may not have the resources or expertise of offer such a plan directly, they are still providing it as a college financing option to members.
With the increased focus on attracting younger members and the need for more savings across the industry, the booming 529 market represents an enormous opportunity for credit unions. Along with a mortgage, a college savings account may be one of the most important relationships a member has with their credit union. The stronger that relationship is, the more loyal the member may be in the future when other financial needs arise.