The History of College Savings Funds – the Rise of Education (Costs)

We’ve always had education. But it hasn’t always cost as much as it does now. It’s only recently that the price of education has risen. That’s why the history of college savings funds is fairly recent. In fact, it goes back only about 35 years. This history is comprised of developments and changes in government funding, in one form or another. We’ll break it down as simply as we can and explain to you, on the way, the importance of the college savings plans governments have implemented. Sit back – you’re in for an education.

Are the nation’s young getting enough education?

October 4, 1957 was a very important date in history. That was the day Russia launched Sputnik, the world’s first satellite. Little did they know at the time what an impact it would have on the future of the earth and its people. It started the great Space Race between Russia and the United States. Being behind in the race, the U.S. realized that if they wanted to compete with the Russian powerhouse, they’d have to muscle up in the education department. They needed more educated and skilled technicians and scientists to develop not only a thriving economy, but a competitive space program.

Benjamin Franklin recognized this principal years before when he said, “An investment in knowledge always pays the best interest.” And the government agreed with this. So education was pushed to the forefront of government legislature. Programs were sought that would make it easier for the average individual to get a higher education. Remember the ultimate goal was to create as many highly educated people as possible and, thus, create a highly-advanced economy.

Education and income – how do they relate?

In 1990, about 41% of Canadian jobs were held by those with postsecondary education. By the end of the decade, that number had increased to over 52%. A survey of more than 500 wealthy Canadians showed that 86% had some postsecondary education. And in the U.S., according to the College Board, a non-profit education organization, the average difference in earning potential between a college and a high school graduate is around $250,000.

Today, throughout America, there are more jobs available than qualified graduates, from all levels of post secondary education, and that increases the value of a college education. During the past 5 years, the number of jobs that require higher education has increased to almost 9 times more than jobs requiring lower education levels.

Education costs soar

Doug Stotz, Managing Director of Strategy of Columbia Management Group, in the U.S., points out that “Since 1980, tuition and fees at both public and private universities are increasing annually at an average rate of 8% - a cumulative tuition increase of 315%.”

During that same period, higher education costs have been increasing two to three times faster than the Consumer Price Index. Over the past decade, college tuition and fees have increased by 40%. During the same period, the average family’s income has increased by 12% - not a very encouraging statistic for those seeking higher education.

In the U.S., the College Board says tuition and room and board for a 4-year public college program averages $10,636 a year. Similar costs for private colleges are $26,854. And that’s today. For a child born in 2001, the projected cost of room and board at a public college is about $130,000 for a 4-year program. That figure for a private college will reach about $320,000, and it goes even higher for the elite schools.

North of the border, in Canada, the picture is the same. In the past ten years, tuition fees at Canadian colleges and universities have more than doubled. Government subsidies are shrinking and the load must be carried by the parents and grandparents.

College savings funds are introduced to help ease the strain

In the mid 1980s, mutual funds were the rage. Investments were soaring. College savings funds were a perfect match – save for college using the power of mutual funds. So a few states started offering prepaid college savings plans. These plans had little appeal for parents aiming to send their kids to the Ivy League – or at least give them a wide choice of colleges. In 1996 Congress added Section 529 to the tax code, allowing states to offer the more flexible and popular college savings plans that could be used at any school.

One organization developed to help coordinate college savings plans is the College Savings Plans Network (CSPN), an affiliate of the National Association of State Treasurers. CSPN believes there’ll be an increasing amount of responsibility on the families to pay for college costs. Americans want to replace debt with savings – earn interest instead of paying it.

In 2001, U.S. Congress introduced a prepaid plan sponsored by the private colleges. These plans allowed students to lock in their costs by paying today for future education expenses. But they had to commit to attending that particular school because the funds weren’t transferable.

Also in 2001, Congress introduced the Affordable Education Act, which allowed money to be withdrawn from a 529 plan tax-free, when used for college costs.

Meanwhile, in Canada, Registered Education Savings Plans (RESP) were introduced to help Canadians with high education costs. In January, 1998, they came out with the Canada Education Savings Grant, which subsidized RESP contributions with a grant that didn’t require repayment.

529 plans are funding America

As more and more people discovered the benefits of college savings funds, the assets of 529 plans rose from $2.6 billion in 2000 to $8.5 billion in 2001. Now they’re standing at almost $11 billion as of last June, an increase of 40% over the previous year. And industry estimates speculate that this could swell to anywhere from $60 billion to nearly $200 billion by 2007. That’s a huge increase, and it proves that there are many people who want to get an education, but need some help with the costs. This also brightens the nation’s economic picture – now young people are emerging into the workforce as college graduates, ready to attack the world and create new and exciting ideas for growth. The government is reaching its ongoing goal of developing an educated nation.

And that’s where college savings funds are today. They’re providing opportunities for higher education for those who want it. They’re fueling the American economy. It’s a win-win situation. And you can easily become a part of it. See your financial advisor for details. You may also like to check out our article, How College Savings Funds Work for more details.

Yes, the cost of education is increasing. But so can the size of your college savings fund. Remember, start early, and stick with it. Your children will have a chance to get ahead when they enter the workforce. And we all want our children to be successful, don’t we? That means that we’ve been successful as parents. And that’s a beautiful thing!

About The Author

Gareth Marples is a successful freelance writer providing valuable tips and advice for consumers about $100 $500 $1000 fast cash loans, American Express rewards and major credit bureaus. His numerous articles offer moneysaving tips and valuable insight on typically confusing topics.

This article on the "History of College Savings Funds" reprinted with permission.

© 2004 - Net Guides Publishing, Inc.