College has gotten expensive. The average cost of tuition for a public college was $9,834 in the 2022-2023 school year and $40,713 for a private nonprofit college, according to the Department of Education.
As the cost of college has increased, so has the usage of 529 plans — tax-advantaged investment accounts used to pay for education expenses. In 2008, the value of all 529 plans was $105 billion. By the end of 2024, that amount roughly quintupled to $525 billion, according to the Investment Company Institute and the College Savings Plan Network.
The Motley Fool has compiled key 529 plan statistics to see just how popular these accounts have become and how much parents are relying on them to fund their children’s higher education.
529 plan basics
Here are the basics of a 529 plan:
- They are funded with after-tax dollars, but gains are tax-free, and withdrawals for qualified educational purposes are not taxed.
- Initially designed solely for paying for higher education, they can now be used for a variety of education expenses.
- 529 plans are state-sponsored, although investing in a plan run by one's state of residence is not required. Investors are free to choose any state's plan, although some states offer incentives for residents.
- There are two types of 529 plans for those who intend to use the account to pay for college: prepaid tuition plans and savings plans.
- Prepaid tuition plans allow the funder to pay tuition at a specific college or university system in advance, which can be beneficial if tuition costs are expected to increase by the time the beneficiary attends the school.
- Savings plans allow the funder to invest in various funds and offer greater flexibility in how those funds are ultimately used.
For a deeper dive into how 529 plans work, check out The Motley Fool’s explainer.
Average 529 college savings plan contribution
The average tuition paid by a 529 plan is $3,225, about 10% of the overall cost of attendance, according to Sallie Mae.
That’s slightly less than the value of borrowed contributions from both parents and students, which includes loans, and about a quarter of the value that parents contribute via other non-borrowed means, like savings or other investments.
