The nation's faltering economy is forcing many parents to put off saving money for their kids' college education.
In the first six months of the year, net sales for Section 529 college savings plans fell by more than 33% to $6.3 billion, from $9.8 billion for the first half of 2007, according to Boston-based Financial Research Corp.
"There is a sense in the industry that college savings are taking a hit," said Joe Hurley, president and chief executive of Pittsford, N.Y.-based Savingforcollege.com LLC. "There is a big concern that families are shelving their college savings accounts because their finances are being stretched."
Mr. Hurley in September hosted one of the 529 college savings plan industry's major annual conferences for both state officials and program managers in Las Vegas.
"People simply don't have the money to save, and they're falling behind," said Peter Mazareas, vice chairman of the Washington-based College Savings Foundation and chief executive of Nahant, Mass.-based Strategic Advancement Group Inc. "It's not a good situation."
EVEN WORSE?
The financial crisis is expected to make third-quarter numbers for the industry even worse.
"We expect a likely contraction in 529 investing," said Bridget Bearden, a research analyst with FRC.
Recent industry studies indicate that further declines are likely.
Parents of college-bound students of all ages are projected to meet just 21% of the total cost of their children's college education, a three percentage- point decrease from last year, according to
Fidelity Investments' annual College Savings Indicator study, released this month.
Additionally, more than one-third of the 3,000 parents surveyed by Boston-based Fidelity said they have either decreased the amount they are saving, or have stopped saving completely for their children's college education.
And according to the College Savings Foundation's annual "The State of College Savings" survey released late last month, the percentage of parents who haven't saved anything for college jumped 16 percentage points from last year, rising from 27% in 2007 to 43% this year.
"Unlike past market events like the tech bubble and the savings and loan crisis, today's situation has much broader implications because just about every sector and asset class has been affected, and it's dipping into our retirement and college savings accounts," said Alexi Giannoulias, the state treasurer of Illinois.
A number of state plans, including Illinois' Bright Start College Savings Program, based in Chicago, hope to weather the storm by emphasizing long-term investing and more conservative investments.
"[Bright Start] already offers a principal- protection portfolio that guarantees investors against loss of principal, but we are looking into a [certificate of deposit] option that provides
FDIC insurance as well," Mr. Giannoulias said.
He and other state officials expressed optimism about the long-term future of their 529 plans.
"Our average beneficiary is 8 years old and our account contributions and enrollments are stable or increasing," Mr. Giannoulias said.
"I think people are generally trying to take a longer-term view," said Chuck Penuel, director of the Georgia Higher Education Savings Plan in Atlanta. "We're continuing to see increases in enrollment."
And Joan Marshall, executive director of the Baltimore-based College Savings Plans of Maryland, said she has been heartened by the fact that the number of people making automatic contributions to the 529 plans appears to be remaining constant.
529 plans are also turning to online registries such as Newton, Mass.-based Upromise Investments' Ugift, which allow friends and family to make gift contributions directly to a child's 529 plan. Over the past year, the seven state 529 plans using Ugift have garnered more than $1 million in contributions, according to Upromise.
Two more state plans, New York's Albany-based 529 College Savings Program Direct Plan and Colorado's Denver-based College Invest Direct Portfolio College Savings Plan, are set to offer Ugift by the end of the year.
"Families have had their backs to the wall for some time, and helping them make saving for college a collaborative effort reminds them they don't have to go it alone," said Liz Robinson, vice president at Upromise.
529 plans can also use the financial crisis to emphasize the need for college savings, said Andrea Feirstein, managing member of New York-based AKF Consulting LLC.
"It's an opportunity for the industry to remind parents they can't lose sight of the future — now more than ever," she said.
E-mail Charles Paikert at [email protected].
