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Get ahead of college debt now

Key Points

  • While education costs continue to rise, so does the value of a college degree
  • College saving plans can help you keep up with rising tuition costs
  • Saving for education expenses could lower your tax burden 


The numbers can be staggering: 71% of students come out of college with loans, and the average debt per graduate can be $28,650or more, depending on the type of school attended. The overall education debt of $1.56 trillion nationwide exceeds all outstanding credit card balances combined.

These statistics aren’t that surprising, considering four years at a private college with room and board just topped $194,040 and $85,480 for a public university, according to 2018-19 figures from the College Board.3 The good news? Higher education continues to offer a significant return on investment, with college students who graduated with a degree earning nearly a third as much as those without degrees.4

With student loan debt and education costs at all-time highs, many parents are examining which tradeoffs are the most effective when trying to keep their kids out of debt while also staying on track to a confident retirement. 

So where do you start? First you’ll want to define education goals and associated costs. Then you can begin building an education savings strategy. 

An Ameriprise advisor can assist with projecting future educational costs, addressing more complex planning needs for multiple children and finding the best savings strategy for your goals.

Here are three education savings vehicles that could help you stay ahead of rising costs.

1. 529 saving plans

Commonly referred to as “the 401(k) of education savings,” this popular education investment tool allows earnings to grow federally tax-deferred. Many states offer tax breaks as well, including deductions for contributions and tax-exempt distributions used for qualified expenses. Anyone can invest in a 529 — from grandparents to kids wanting to pitch in on their education.

The best part? Distributions aren’t taxed at the federal level and in most cases at the state level, as long as they’re spent on qualified education expenses. Nearly every state offers at least one 529 plan, and the funds can be used at any accredited college or university in the country (as well as some foreign institutions).

With the passage of the 2017 tax law, withdrawals from 529 plans – up to $10,000 a year – may now also be used for K–12 tuition at eligible institutions. This gives investors the choice to apply funds toward either college expenses or K-12 school tuition for younger children or grandchildren.

Keep in mind that not all 529 accounts provide an extensive selection of investments which may impact how investors can balance risk and growth. An advisor can help you select a plan based on individual needs and goals.

2. Coverdell savings account

Another option is a Coverdell Education Savings Account (CESA), which was left unchanged in the 2017 tax law. A CESA can be used for qualified education expenses including college tuition as well as K–12 education expenses for younger family members. Like a 529, earnings grow tax-deferred, and qualified withdrawals are exempt from federal income tax and may be free from state taxes. Contributions are limited to $2,000 annually per beneficiary, so these accounts are often used in tandem with a 529 plan.

Unlike a 529 plan, income restrictions apply and a CESA is more limited when it comes to age — contributions must be made before the beneficiary reaches age 18, and withdrawals must be made before the beneficiary reaches age 30, unless the child is a special-needs beneficiary.

How potential savings over an 18-year period could help pay for the average cost for 4 years at a private college5:

Example is hypothetical, does not consider taxes or other possible fees, and is not a guarantee of financial results.

3. Cash value life insurance

A less familiar possibility is using a portion of cash-value life insurance to help pay for college. When properly structured, this type of policy can provide coverage for the owner’s entire life, has the potential to accumulate in value and the cash value portion can be used for many purposes.

While protection (i.e. the death benefit) should be the primary objective for purchasing cash-value life insurance, additional objectives may be appropriate when combined with protection if they align with the product’s ability to meet the client’s additional needs. That said, a portion of the policy may be tapped for educational or other purposes by making a withdrawal or taking out a loan* — or some combination of the two.

Contact an advisor

For a complete assessment of these savings vehicles and more, talk to an Ameriprise advisor today.

Forbes, “Student Loan Debt Statistics in 2019: A $1.5 Trillion Crisis”:
Student Loan Hero, “A Look at the Shocking Student Loan Debt Statistics for 2019”:
Average published tuition and fee prices for full-time in-state students, The College Board:
IES/NCES, Annual Earnings of Young Adults:
Graphics Source: Savings Calculator: 
*Accessing policy cash value through loans and surrenders may cause a permanent reduction of policy cash values and death benefit, and negate any guarantees against lapse. Before you purchase life insurance, be sure to consider the policy’s features, benefits, risks and fees, and whether it is appropriate for you, based upon your financial situation and objectives.
This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual investor. 
The information provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial.
Before purchasing, carefully consider the investment objectives, risks, charges, and expenses associated with a 529 Plan before investing. More information regarding a particular 529 Plan is available in the issuer’s official statement, which may be obtained from an Ameriprise financial advisor. Investors should read the 529 Plan’s official statement carefully before investing.
Clients contributing to a 529 Plan offered by a state in which they are not a resident, should consider, before investing, whether their, or their designated beneficiary(s) home state offers any state tax or other state benefits such as financial aid, scholarship funds or protection from creditors that are only available for investments in such state’s qualified tuition program.
The earnings portion of money withdrawn from a 529 plan that is not spent on eligible expenses will be subject to income tax, an additional 10% federal tax penalty, and the possibility of a recapture of any state tax deductions or credits taken.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial cannot guarantee future financial results.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Ameriprise Financial Services, Inc. Member FINRA and SIPC