Tennessee - Saving For College Report

We discuss the tax benefits, trends, do's and don'ts and various plan options of setting up a 529 college savings plan in Tennessee

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As parents, grandparents and students we know college is coming and that we're somehow going to have to pay for it someday. Fortunately we have many options available to us including savings bonds, the stock market and 529 plans. Starting a 529 account now is always the best option, no matter how old you (or your child) is. While playing the stock market may yield higher returns on your investment, placing your money into a 529 plan allows it to grow in a tax free environment. One study even found that when the federal tax benefits were taken into consideration, 529 plans outperformed their benchmarks in every category.

Tennessee has it's own state-operated 529 plan called TN Stars College Savings 529 Program. It is important to note that your child does not have to go to a TN college or university in order to use this savings account. 529 plan funds can be used at any accredited college or university across the nation, including some K-12 private schools!

Tennessee College Costs & Trends

Colleges and universities across the United States experienced increased operating costs of 2.5% in 2019. This most recent inflation figure was down slightly from the 2.9 percent increase in 2018 and 3.4 percent increase in 2017. These costs are forwarded directly to students in the form of higher tuition and living expenses. As these costs steadily rise every year, parents are looking for ways to help offset these future higher education costs.

These rising costs are hitting closer to home in Tennessee as well. Tennessee's' higher education costs rose by 55.5% in just the last 10 years, ranking as the 11th highest state.

The table below shows the average one-year costs in 2020 for different types of TN colleges and universities.

OwnershipDegreeSchoolsPublic Out-of-State TuitionPublic In-State TuitionMedian DebtTotal Annual In-State Cost
Public 4 year 10 $24,248 $8,630 $22,660 $13,294
Public 2 year 39 $16,155 $4,150 $9,346 $6,929
Private 4 year 55 $23,488 $23,488 $24,430 $19,809
Private 2 year 64 $10,880 $10,880 $11,078 $19,426

These costs rise every year. Rising tuition is a major driver in these increased higher education costs. Tuition at a 4-year university in TN rose 15% (ranked 34th worst in the US), while a 2-year or trade school increased their tuition by 18 percent.

529 Tax Benefits for Tennessee Residents

Unfortunately Tennessee does not offer any tax benefits for socking away funds in a 529 account for your child. Thankfully, TN residents can open an account in any other state that lets them.

Best 529 Plans in Tennessee

The Tennessee State Treasury Department operates a direct-sold multi-manager 529 plan (TNStars College Savings 529 Program). The unit-type prepaid tuition program for Tennessee residents was closed to new contributions in November 2010.

State Plan Name:TN Stars College Savings 529 Program
Minimum Contribution:$25
Maximum Contribution:Account balances can’t exceed $350,000. After this, only account earnings can add to the balance.
Fees:An annual asset-based fee of 0.35% except with First Tennessee Interest Bearing Accounts, which don’t have fees.

Tennessee 529 Plan Statistics

There are 17,437 registered in Tennessee with a total value of $170,199,854. That is an average of $9,761 per account. Unfortunately 529 plans are not widely used... a 2018 study by Edward Jones found that only 29 percent of Americans were even aware that 529 savings plans exist!

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