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May 20, 2009

Losing College Savings

Graduation caps This year marks 10 years since my husband and I graduated from college and we're both still paying off our student loans. For various reasons, neither of our families had saved money for our college educations. Although our parents contributed as much as they were able while we were in school, we both worked and took out hefty loans as well. Now, don't get me wrong, we don't begrudge our college loans one bit. My husband went to a huge state university and I went to a small private college and we both feel we had the best possible undergraduate experience.

But after our son was born, we wanted to start saving for his future education. For his first birthday and Christmas (only three days apart!) we bought him one gift and opened a 529 plan. We've been contributing a modest sum monthly and have encouraged our relatives to make gifts there as well.

Our fund has been open for 2.5 years and its total value is now 24% less than our total contributions. That's not 24% less than the fund's peak earnings or our contributions + returns, that's almost a quarter percent less than the actual cash we have contributed. I can't help but think that we would have been better off stuffing our cash under the mattress for the past two and a half years.

And so when I heard on NPR on Monday about the problems with Alabama's Prepaid Affordable College Tuition Program (PACT), I could understand how they were feeling. Now, to be clear, we are investing Maryland's college savings plan which is essentially an IRA. And both my husband and I knew that this investment came with risk. Quite frankly, we couldn't afford the monthly contributions required to actually pre-purchase college tuition at today's prices. But these folks in Alabama did believe they were buying into a guaranteed product. And now that is at risk. NPR also reports that Tennessee, South Carolina, West Virginia and Washington are also reporting shortfalls with their 529 plans.

I've said many times that I sure am grateful that this economic crisis has come at a time when we're so far from retirement. And, now, I'm glad we have a solid 14 more years before Lucas is ready for college. We'll keep putting money into our 529. Because the share price is down, we're now buying almost three times as many shares than we were buying two years ago with the same monthly contribution. My bet is on those shares going up over the next 14 years.

But, even if they do, I'm certain Lucas will have to work his way through college and take on some loans just like his parents did. And I don't think that's such a bad thing.

Original post to DC Metro Moms. When Aimee Olivo isn't listening to NPR she is blogging about life at Smiling Mama and about family-friendly activities in Prince George's County, MD and the DC-metro area at Out by Ten.


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