A Small Percentage of Families Save in 529 Plans

Less than three percent of families saved for college though a 529 or Coverdell plan according to a 2010 survey of consumer finances. A recent report by the Government Accountability Office (GAO) looks at the data on 529s and looks at how effective they are at helping families save for college. Overall the report suggests that the families  who do open 529 plans tend to be wealthier than others, more educated, and more optimistic that their children will be able to attend college. State officials interviewed for the GAO report suggest that low-income families feel less certain about their children’s college hopes and therefore have less incentive to save.   Additionally, low-income families are often more confused about how to use a 529 and are unaware of its benefits.  The GAO recommends that more research is needed on 529s and their beneficiaries as well as the need to look at all of the federal government’s higher education financial assistance programs together (grants, loans, and tax benefits).

Among the Findings:

• 91% of families with accounts had at least a college degree while 44% of those without accounts had the same level of education.


• Of the 25% of families who said they expected to have significant higher education costs only 7% had 529 plans. Of the 18% who said saving for college was a priority only 9% had 529 plans.


• Though specifics of 529 plans vary state by state, the most important factors in families’ decision-making process were tax benefits, maintenance and enrollment fees, and varied investment options.


• Some families did not enroll in a 529 due to the difficulty in saving given financial hardship,  and the concern and uncertainty in how the plans might affect  a family’s expected family contribution (EFC) for Title IV financial assistance under the Higher Education Act.


• Overall, significant barriers to enrolling in 529s for low-income families seem to be  a  lack of awareness of their existence, confusion on how the plans work, and how plans differ by state.  Additionally, low-income families are more likely to have insufficient income, underestimate the cost of college, and have more misconceptions about financial aid.