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Saving vs. borrowing

Let’s look at a hypothetical example. In 18 years, suppose sending your child to college for four years will cost $245,000.1 You could wait until your child is 18 years old and borrow the money, paying interest for 15 years. Or, you could begin investing $579 monthly in a tax-advantaged 529 plan earning a hypothetical 7% (before any applicable taxes) per year. In this example, you save by investing now, rather than borrowing later!

Your Cost for a $245,000 Education

Investment fees, expenses and taxes would lower the savings amount and increase the cost shown.

Each plan account is subject to an annual program management fee of 0.40% of assets and underlying fund expenses, currently up to 0.86% of assets, which may vary, and sales loads and annual and deferred sales charges, which vary by class of shares. See the Investor Handbook for more complete information. These expenses are not reflected in the illustration; if they had been, results shown would be lower.

Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. See the 529 Investor Handbook for more complete information.

The borrowing example assumes a fixed interest rate of 6.80%. Source: Based on Stafford loan issued by Salliemae after July 1, 2006. Assumes borrower at some point consolidates all federal education loans into a Stafford Loan. Examples are illustrative only and are not representative of any particular investment. 529 plans do not guarantee your investment or any specific rate of return, and you may have a gain or a loss on the amounts invested. Qualified withdrawals from 529 plans may be subject to state taxes. The earnings portion of nonqualified withdrawals is subject to federal income tax, a 10% federal income tax penalty and possible state income tax and penalties. Periodic investing plans do not assure a profit and do not protect against loss in a declining market. Since such plans involve continuous investment in securities regardless of their fluctuating price levels, it's prudent to consider your financial ability to continue making purchases through periods of low price levels.

Important Legal Information

Investors should carefully consider plan investment goals, risks, charges and expenses before investing. To obtain an Investor Handbook, which contains this and other information, talk to your financial advisor, go to the Order 529 Literature section on this website, or call Franklin Templeton Distributors, Inc., the manager and underwriter for the plan, at (800) 818-4030. You should read the Investor Handbook carefully before investing and consider whether your or the beneficiary's home state offers any state tax or other benefits that are only available for investments in its qualified tuition program.


  1. Source: The College Board, Trends in College Pricing, 2010. Projected cost upon child’s entrance to college for four years at a public college. Figure is based on the 6.70% and 5.22% 10-year average annual increase in historical public college costs and private college costs, as reported by The College Board for the 2010-2011 school year.

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    For U.S. residents only.