(MoneyWatch) Hope you had a great 529 Day.
May 29 (5/29) is the day each year that the college savings industry tries to grab the attention of families across the country and convince them to save for college in a 529 college savings account.
In honor of the day, I'm sharing with you the results of some simple math calculations from T. Rowe Price, the mutual fund company, that demonstrates how saving for college can be incredibly more powerful than borrowing.
In a nutshell, T. Rowe Price illustrated that borrowing for college instead of methodically saving can effectively double your college costs.
In this country, the average college loan balance per borrower is currently about $25,000. If someone were to use a 529 account to save that amount, they would have to contribute $17,000 over 15 years. This assumes a 6% annualized return and 0.85% in fees.
In contrast, if a family borrowed $25,000 instead, according to T. Rowe Price, they would pay $35,000 over 10 years, assuming a 6.8% interest rate, which is the current rate for the federal Stafford Loan.
If the family had accumulated $25,000 in this scenario, their monthly contributions would have been $92. Contrast that with the monthly loan repayments that would pencil out at $288. In other words, their monthly costs would be more than three times higher if they took out debt instead of using a 529.
Students who have to borrow too much for college can struggle financially for many years after they graduate. It's always better to save for college rather than finance a bachelor's degree through loans.