Spike in student loans could be boon to 529s

The amount of money students borrowed for college has risen dramatically in the last year, a development that could be beneficial to Section 529 college savings plans — if the 529 industry can effectively communicate its message, observers noted.

Federal student loan disbursements grew to $75.1 billion in the 2008-2009 academic year — a 25% increase over 2007-2008, according to data released yesterday by the Department of Education.

Such an eyebrow-raising jump in student borrowing is “a good talking point” for the 529 college savings industry, said Andrea Feirstein, the managing member of New York-based AKF Consulting LLC, who works with a number of state plans around the country.

“It drives home the point that every dollar you save is one less dollar you have to borrow,” Ms. Feirstein said.

Headlines generated by the new Education Department data can “absolutely be helpful” to promoting 529 plans, said Joan Marshall, executive director of the College Savings Plans of Maryland.

“The real challenge now is getting that information in front of parents of younger children today,” said Ms. Marshall, who is also the vice chairwoman of the College Savings Plan Network.

“Those parents are not necessarily paying attention to that story, and we have to help them see the connection between what’s happening today and what their own children may be facing in the future.”

Illinois State Treasurer Alexi Giannoulias also emphasized the importance of publicizing the rise in student borrowing to younger families.

“Starting a 529 plan for a child at birth puts a family into a savings mindset that will help relieve financial pressures so a child isn’t paying down debt decades after graduation,” he said.