College Guide


January 04, 2013 2:39 PM Those College Savings Plans: Mostly for Rich People

By Daniel Luzer

In 1996 Congress created 529 college savings plans, which allowed parents and grandparents to save money, tax free, to help children pay for college.

It turns out few American families are participating in the savings programs, and those who do are mostly pretty affluent. According to a recent report from the Government Accountability Office:

A small percentage of U.S. families saved in 529 plans in 2010, and those who did tended to be wealthier than others. …Less than 3 percent of families saved in a 529 plan or Coverdell Education Savings Account (Coverdell)…. While the economic downturn may have reduced income available for education savings, even among those families who considered saving for education a priority, fewer than 1 in 10 had a 529 plan (or Coverdell). Families with these accounts had about 25 times the median financial assets of those without. They also had about 3 times the median income and the percentage who had college degrees was about twice as high as for families without 529 plans (or Coverdells).

The median annual income of families with 529 accounts was $142,000.

Chad Aldeman over at the New America foundation notes that the tax benefits accruing due to 529 plans amount to $1.6 billion every year, which could pay for another 288,000 students to receive Pell Grants, federal money available for low-income students to attend college.

One thing it’s perhaps worth pointing out here is that “25 times the median financial assets… and 3 times the median income” does not necessarily mean “it’s easy for them to pay for college.” A family bringing in $142,000 a year, and considering private school for two teenagers, benefits a great deal from specific tax plans available for college savings, even if they’re not struggling in any ultimate sense.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer


  • Doug on January 05, 2013 10:10 AM:

    Have you considered the possibility that the poor don't need to save as much as the higher income people do because the higher income people have to pay a whole lot more for college?

  • skeptonomist on January 05, 2013 11:17 AM:

    529 plans, like most savings and retirement plans, are welfare for Wall Street.

  • Doug on January 05, 2013 5:00 PM:

    Colleges. Welfare organizations for intellectual phonies

  • Doug on January 05, 2013 5:04 PM:


    Did you read the article? 529 plans have not drawn much money. Hardly a great success for Wall streeters.