MYTH: I can just take out loans to pay for college, or my child will get financial aid.
FACT: Approximately 60 percent of federal financial aid comes in the form of student loans, and all loans represent debt that a family must incur. Any savings, even in small increments, that a family can put away will offset the final amount of debt it must take on to pay for college.
MYTH: If I save now, my child won’t be eligible to receive as much financial aid later.
FACT: A 529 account is not included in determining eligibility for Pennsylvania state financial aid programs.
And, as far as federal financial aid, funds saved in 529 plans are generally considered to be parental assets, which means that only about six percent of these assets are currently counted towards the family’s expected contribution in federal need-based financial aid calculations.
MYTH: A 529 plan can only be used at schools in my home state.
FACT: A 529 plan may be used at any school that is accredited and eligible to accept federal financial aid. Nearly all colleges and universities, community colleges, and career or technical schools are eligible. (The complete list is available at www.fafsa.ed.gov.) It even includes some colleges located outside of the U.S.
MYTH: A 529 plan can only be used for a State four-year college.
FACT: A 529 plan may be used at any eligible school, including two- and four-year colleges, graduate schools, and vocational and technical schools. Funds may be used for tuition, fees, certain room and board costs, and in 2010, computers and course-related software.
MYTH: 529 plans are only for wealthy investors.
FACT: 529 plans have much lower required minimum contribution amounts than many other investments, making them accessible and convenient for families of any income level. Families can start a plan with as little as $25 per month.
MYTH: 529 plans are only for young children.
FACT: There is no maximum age for a 529 plan. Assets may be used at eligible schools offering adult career training or advanced degrees, including part-time programs.
MYTH: If my child doesn’t go to college, I will lose my money.
FACT: A 529 account holder can change the plan’s beneficiary to another eligible “member of the family,” such as siblings or even oneself with no tax penalty. And, in the Pennsylvania 529 College Savings Program, you can always withdraw your money at any time for any reason. Investment gains or losses might apply, you may owe federal and state taxes, and you may incur federal tax penalties.
MYTH: The tax advantages of 529 plans will expire.
FACT: The federal law that gives 529 plans their federal tax advantages has no expiration date. A change would require new legislation to be enacted.
MYTH: Opening a 529 plan is complicated.
FACT: A Pennsylvania 529 College Savings account can be opened online or by paper and mail, and customer service representatives are available to answer any questions you may have. Additionally, a wealth of information is available online for families seeking more information about saving for college.
Source: Modified from the College Savings Plans Network’s Top 10 Myths About 529 Plans.