529 account funds can now be used to repay student debt and finance apprenticeships
A federal law enacted in December expands the scope of the tax-advantaged college savings accounts known as 529 plans by allowing their owners to pay off up to $10,000 in beneficiaries’ student debt. It also allows them to pay off up to $10,000 in student debt for each of a beneficiary’s siblings. For example, if “a student had two siblings with student loans, another $20,000 total could be withdrawn, without penalty, to pay their debt.” In addition, the new law allows account owners to spend up to $10,000 annually on the cost of apprenticeship programs for beneficiaries, as long as the programs are registered with the federal Labor Department. On the federal level, contributions to 529 accounts are made on an after-tax basis, meaning account owners do not receive a tax deduction for those contributions. But subsequent investment earnings are tax deferred, and qualified withdrawals are tax free. Some states, however, offer tax incentives for contributions. The new rules are retroactive to January 1, 2019.
Source: New York Times
As measured by wealth accumulation (not income), the value of a college education appears to be in decline for most
A recent article published by the Federal Reserve Bank of St. Louis notes that the “college income premium,” though declining, remains positive. However, the “college wealth premium… has declined more noticeably among all cohorts born after 1940.” The term income premium refers to the extra income earned by a family with a “head” who holds a college degree compared with a family headed by a non-degree holder. The term wealth premium refers to the extra net worth of families headed by a college graduate. According to the paper, “the wealth-building advantage of higher education has declined among recent graduates of all demographic groups. Among all racial and ethnic groups born in the 1980s, only the wealth premium for white four-year college graduates remains statistically significant.” Factors including more debt and higher home prices may account for the difficulty of today’s graduates to accumulate extra wealth.
Source: The Washington Post
College graduates benefit from higher lifetime income and lower unemployment rates
The College Board has reported that workers with a bachelor’s degree will earn approximately $400,000 more in their lifetimes than those with only a high school diploma. By age 33, degree holders who began college at age 18 and finished within four years earn enough “relative to a high school graduate” to compensate for the cost of their education and the financial effects of being out of the workforce while they were earning their degrees. While the “estimated median lifetime earnings (in 2017 dollars) for a bachelor’s degree recipient at age 64 was more than $1.2 million,” high school graduates earned about $800,000. In 2018, college graduates who worked full time and were at least 25 years old earned a median income of $65,400. The median income for workers with just a high school diploma was $40,500. That same year, “the unemployment rate for people with at least a four-year degree was about 2%, compared to 4% for people with only a high school diploma.”
Source: Education Dive
Liberal arts colleges provide the best return on investment — eventually
Researchers at Georgetown University’s Center on Education and the Workforce who analyzed factors including the cost of a degree and graduates’ future annual earnings have determined that a degree from a liberal arts college provides the best return on investment — in the long run. They found that the “median return on investment for a liberal arts college degree is 40% below other colleges 10 years after graduation. But after 40 years, the ROI on a degree from a liberal arts college is 25% higher than all other colleges.” That may be due to the facts that the perceived value of the degree becomes more apparent over time and that liberal arts graduates are more likely to have skills employers value, such as those related to critical thinking and communication. Researchers also found that “liberal arts colleges with a high percentage of students with STEM majors tend to have higher ROIs because those students typically have higher earnings once in the labor market.”
Source: CBS News