Rising Student Loan Interest Rates Highlight Advantages of 529 Plans


Rising Student Loan Interest Rates Highlight Advantages of 529 Plans


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The cost of borrowing with student loans is getting more expensive. This month, the interest rate on federal undergraduate student loans will hit 6.5%—the highest rate since 2008, making saving for college through a tax-advantaged 529 plan look better than ever.

For a student who takes out a 10-year student loan of $28,000 under this new rate, the borrower would expect to pay about $10,000 in interest, or around 35% more for college than a student who pays for college through savings or other options, according to College Money Matters.

While student loan interest rates are on the rise, grant and scholarship funds available to students have declined. Between 2011 and 2023, total financial aid offered to undergraduate students dropped from $248 billion to $177 billion, based on information from The College Board. Meanwhile, college costs continue to increase. The College Board states that in the past ten years, in-state tuition and fees at public four-year universities grew at an average rate of 2.2% beyond inflation, with per-year cost per student reaching $28,840 in 2023-2024. 

Parents and Students Reap Benefits of 529 Savings

Parents can avoid this rock-and-a-hard-spot situation by setting up a tax-advantaged 529 savings account with The Education Plan® for their child. Named for Section 529 of the federal tax code, 529 plans are tax-advantaged college savings plans designed to make post-secondary education more affordable for families. 

Students can use these funds for many forms of post-secondary education, including college,
vocational school, professional school, and even graduate degrees. 529 plans let your earnings grow without federal tax, and the money you withdraw is also federal tax-free as long as it's used to pay for qualified education expenses, including tuition, room/board, books, supplies, and more.

If you're a New Mexico taxpayer, you are able to deduct your contributions to The Education Plan from your state income taxes.

Opening a 529 plan for your child or children may be even smarter than choosing a taxable savings account or similar investing option. In a hypothetical example, a family investing just $150 per year into a 529 plan can potentially earn around $10,000 more over 18 years, compared to a traditional taxable savings account.*

It's simple. By consistently investing in a 529 plan over the years leading up to your child's
future education, you'll save more in these tax-advantaged accounts without facing the additional cost of interest rates associated with student loans and other borrowing options.

Getting Started is Easy

If you haven't opened a 529 plan for yourself or a family member, it's easy to do. Any U.S. resident with a Taxpayer Identification Number (TIN) or Social Security number can open a 529 savings account with The Education Plan. 
Visit our Learning Center for more detailed information on the tax advantaged benefits of 529 plans, including instructions on how to open an account, ideas for saving, which family members qualify to receive these benefits, when and how to take withdrawals, how to choose or change a plan beneficiary, and much more.

*This hypothetical example is for illustrative use only and does not reflect an actual investment in any specific 529 plan. Families are assumed to be in the 24% tax bracket during contribution and distribution. The hypothetical example assumes a monthly contribution of $150, return on investment of 7% and no withdrawals during the 18 years. Actual returns may vary.


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For more information about The Education Plan, call 1.877.337.5268 or view the Plan Description and Participation Agreement, which includes investment objectives, risks, charges, expenses, and other important information; read and consider it carefully before investing.

Please Note: Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s qualified tuition program. You also should consult a financial, tax, or other advisor to learn more about how state-based benefits (or any limitations) would apply to your specific circumstances. You also may wish to contact directly your home state’s 529 plan(s), or any other 529 plan, to learn more about those plan’s features, benefits and limitations. Keep in mind that state-based benefits should be one of many appropriately weighted factors to be considered when making an investment decision.

The Education Plan is administered by The Education Trust Board of New Mexico. Ascensus College Savings Recordkeeping Services, LLC, the Program Manager, and its affiliates, have overall responsibility for the day-today operations, including investment advisory, recordkeeping and administrative services. The Education Plan’s portfolios invest in: (i) mutual funds; (ii) exchange traded funds; and/or (iii) a funding agreement issued by New York Life. Investments in The Education Plan are not insured by the FDIC. Units of the portfolios are municipal securities and the value of units will vary with market conditions.

Investment returns will vary depending upon the performance of the portfolios you choose. You could lose all or a portion of your money by investing in The Education Plan depending on market conditions. Account owners assume all investment risks as well as responsibility for any federal and state tax consequences.

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