The Great College Savings Fiasco

This article was originally published by on Thursday, Jan. 15, 2009.

529 plans, sold for a decade as the 1-stop solution to paying for college, haven't performed as advertised. And for many families, there's a better option available.

By Katherine Reynolds Lewis

Mention "college savings" to a financial professional and you'll likely be steered to a 529 plan.

In the decade since these investment accounts were created, they've become practically synonymous with college savings. and the College Savings Plan Network are exclusively focused on 529 plans, for instance.

But many parents who have invested in 529s, counting on the market to help cover the soaring costs of college, would've been better off putting the money under their mattresses.

The plummeting stock market has erased many if not most gains. The balance could be less than the parents have contributed. And parents of older children, in particular, don't have much time to make up losses before they need to pay tuition.

Margot Black, a Los Angeles writer and publicist, put $15,000 into a 529 plan for her toddler son, only to see the account lose 40% of its value in less than a year.

"It was heartbreaking to watch," Black said. "The 529 plan is sold to parents as the no-hassle investing fund. . . . I honestly thought we had done such a good job upfront that we could relax."

Simply put, 529 plans don't live up to the hype. Though they remain a good choice for some, you should understand the trade-offs and alternatives before putting your college fund into one of these heavily marketed plans.