In brief
From retirement savings and credit scores, to marriage plans and medical decisions, repaying college loans can negatively affect nearly every aspect of a borrower’s life. One way to reduce debt burdens is to increase investments in 529 plans that grow tax free for qualified education expenses.1
College is still worth it, but too much college debt isn’t
A recent Federal Reserve study found that graduates earn a robust 12.5% annual return on their investment in college.2 However, today’s student debt crisis can make diplomas less valuable and financial lives more unstable:
- Student debt has more than quadrupled to $1.6 trillion in just 20 years, as free financial aid has failed to keep pace with rapidly rising college costs.3
- One in six U.S. adults owes federal student loans, with an average outstanding balance of $39,400. At current interest rates, that translates into $445 going toward monthly loan payments instead of other financial priorities.4
- Three in four borrowers have experienced negative financial events over the past 12 months, such as missing bill payments, delaying medical care or bouncing checks.5
- Nearly 30% of federal borrowers are 90 or more days past due on payments, up from less than 12% five years ago and near all-time highs.6
Student loans start coming due shortly after college, when recent graduates can least afford the expense. Missing payments can seriously harm credit scores and make it difficult to qualify for loans, rent apartments, sign up for utilities or do anything else requiring a credit check. Once loans go into default, the government can take more drastic measures, such as garnishing wages and withholding tax refunds.
Meanwhile, making monthly loan payments can leave young borrowers with little or no money for emergency funds, retirement savings, house down payments and other important goals. It’s no wonder 97% say they’ve had to delay or abandon major life milestones because of student debt.7
How 529 college savings plans can reduce student debt
A 529 plan offers unique advantages for families looking to increase college funds and reduce expensive student loans:
- Tax-free investing for qualified education expenses to help maximize growth potential and minimize debt burdens.1
Paying education expenses with a 529 plan
College: Tuition, fees, room/board, books, supplies, computers and special needs services at two- and four-year universities, graduate schools and trade schools
Job training: Apprenticeships and credential programs, such as professional licenses, certifications and continuing education
K-12: Up to $20,000 per child each year for tuition, books, supplies, tutoring, test fees and more.
- Tax-deductible contributions in some states, freeing up more money for college savings.
- Special gift and estate tax benefits available only in 529 plans, which encourage grandparents, aunts, uncles and other family members to make large contributions.
- Flexibility to pay off loans. For example, if older kids have already graduated with loans, a 529 plan allows tax-free withdrawals of up to $10,000 from a younger sibling’s account to quickly pay down debt.1
- Little or no impact on federal financial aid, which may enable families to qualify for free college funding sources that don’t involve borrowing.
- Access to a financial professional who can review your unique situation, determine borrowing limits and create a plan for covering all remaining college costs.
Students planning to borrow?
Families may still need to invest.
For undergraduates, federal student loans are capped at a lifetime maximum of $31,000 – enough to currently pay for just one semester at a private university.8
Coming July 2026:
Reduced borrowing limits on many federal college loans Starting July 1, 2026, many families won’t be able to borrow as much for college, creating bigger funding gaps and greater need to invest.