Parents have invested more than $2.8 billion in government-sponsored college savings plans around the region as they try to keep up with rising college costs.
Maryland’s two plans — the Maryland Prepaid College Trust and the College Investment Plan — have grown to more than $2 billion in assets since their respective inceptions in 1998 and 2001.
In the District, residents have invested $72.5 million in the DC 529 College Savings Program while in Virginia there is $730 million in the Virginia Education Savings Trust, the largest of the state’s three government-backed plans. The totals are derived from the funds’ annual reports.
The plans were created in the 1990s in an effort to help parents pay for the skyrocketing costs of college education. The average price of a private four-year college in 2006 was $30,367, with costs rising faster than the rate of inflation for the 11th straight year. This number does not take into account room and board, which cost an average of $8,149.
Increases in the cost of college are not expected to stop. Assuming recent rates of growth continue, the average cost of sending a 4-year-old child to college in 2022 will be $247,265, according to a tuition calculator on Savingforcollege.com.
To help parents save for the expense, banks and states began what are known as 529 funds. These act like pension funds, with an outside asset manager making investment decisions for the pooled funds.
Because 529 funds are invested in stock and bond markets, they are subject to volatility.
For instance, Maryland’s Prepaid College Trust has been underfunded by at least $25 million in four of the last five years.
This plan, however, is guaranteed by the state, said Joan Marshall, executive director of the College Savings Plans of Maryland.
“If the plan doesn’t have the money to pay, then the government must include money in the state budget” to make up the shortfall, she said.
In each of the plans, payments are based upon tuition at public universities, although the money can be used to pay for private universities. Withdrawals from the plans are tax-free.
