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Parents boost college savings to avoid crushing student loan debt

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Kathryn Bracho, 48, with her husband, Michael, and their two sons, Declan and Taran.

Courtesy: Kathryn Bracho

With federal student loan forgiveness in jeopardy and the rising cost of college now a top concern for students and their families, more Americans are prioritizing saving for higher education.

In 2024, 74% of parents surveyed have started putting money away for college, according to Fidelity’s College Savings Indicator — a spike from 58% in 2007, when the study was first conducted. Fidelity polled nearly 2,000 families with children high school age and younger between April and May. 

“My husband and I just kept hearing from people with older kids about just how expensive college is,” said Kathryn Bracho, 48, who lives in Green Bay, Wisconsin.

Bracho and her husband, Michael, started contributing to college savings accounts in 2017 so their sons — Declan, 15, and Taran, 12 — would have options after high school, she said.

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“I don’t know that we have as much as we had hoped, but just the fact that we’ve been steadily contributing gives me a certain degree of reassurance,” she said. “They’ll have to take out some loans but it hopefully won’t be that crushing burden.”

To be sure, sky-high costs and concerns over ballooning student loan balances have weighed heavily on considerations about college for students and their parents.

“Families are beginning to row together in the same direction and realize the value of higher education and what they want to get out of higher education,” said Chris McGee, chair of the College Savings Foundation, a nonprofit that provides public policy support for 529 plans.

“Nobody wants to be part of the $1.7 trillion,” McGee said, referencing the total amount of outstanding student loan debt.

How savings plays into covering college costs

David Ochs, a physician in Richmond, Virginia, owed $315,000 in education loans by the time he finished his residency. “It’s been miserable,” the 39-year-old said.

Now as the father of two sons, ages 1 and 5, Ochs said he started saving for their college educations soon after they were born because he didn’t want them to experience the same hardship. “All of a sudden your life is all about trying to get out of a strangling debt.”

Still, contributing to their 529 plans has necessitated sacrifices such as forgoing extra payments toward his student loans, he added. “I think it’s a gesture of love.”

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Among the 94% of parents funding their children’s higher education, almost half say that savings is their primary way of paying the tab, a new report by the College Savings Foundation found. The annual State of Higher Ed Savings survey polled more than 1,000 parents of children age 25 and younger in July. 

For the first time in the College Savings Foundation survey’s history, more than half of all parents said they are tapping a 529 college savings plan.

In 2024, total investments in 529s jumped to $450.5 billion in June, up nearly 10% from $412.5 billion the year before, according to data from College Savings Plans Network, a network of state-administered college savings programs.

Financial experts and plan investors agree that 529 plans are a smart choice for many. And yet, in previous years, data shows that regular contributions to a 529 college savings plan often took a back seat to paying more pressing bills or daily expenses.

Even now, parents hope to use savings to pay for 67% of their child’s education, but only 30% are on track to hit that goal, Fidelity found.

“A college education is still valuable, but it’s the lack of planning that’s a little bit alarming,” said Tony Durkan, a vice president and head of 529 relationship management at Fidelity Investments.

The benefits of a 529 college savings plan

Among other recent changes, higher contribution limits and the flexibility to roll unused money into a Roth individual retirement account free of income tax or tax penalties have helped boost interest, McGee said.

The restrictions around 529s have also loosened to include continuing education classes, apprenticeship programs and even student loan payments.

“The legislative updates that have come through have certainly broken down barriers to entry to 529 plans,” Fidelity’s Durkan said.

Here’s a closer look at some of the changes:

New Roth IRA rollover rules

Thanks to Secure 2.0, as of 2024, families can roll over unused 529 plan funds to the account beneficiary’s Roth IRA without triggering income taxes or penalties. Among other qualifications, the 529 plan must have been open for at least 15 years.

That change follows the Secure Act of 2019, which let 529 users put some of the funds toward their student loan tab: up to $10,000 per year for each plan beneficiary, as well as another $10,000 for each of the beneficiary’s siblings.

Previously, tax-advantaged withdrawals were limited to qualified education expenses, such as tuition, fees, books, and room and board. Now, 529s offer much more flexibility, even for those who never go to college, Chris Lynch, president of tuition financing at TIAA, told CNBC last year.

In that case, you could transfer the funds to another beneficiary or withdraw them and pay taxes and a penalty on the earnings. If your student earns a scholarship, you can typically withdraw up to the amount of the scholarship penalty-free.

Higher maximum contribution limits

This year, parents can gift up to $18,000, or up to $36,000 if you’re married and file taxes jointly, per child without those contributions counting toward your lifetime gift tax exemption. That’s up from $17,000 and $34,000 for married couples filing jointly in 2023. 

High-net-worth families that want to help fund a family member’s higher education could also consider “superfunding” 529 accounts, which allows frontloading five years’ worth of tax-free gifts into a 529 plan.

In this case, you could contribute up to $90,000 this year, or $180,000 for a married couple. But then you wouldn’t be able to give more money to that same recipient within a five-year period without it counting against your lifetime gift tax exemption.

A larger lump-sum contribution upfront may potentially generate more earnings compared with the same size contribution spread out over a few years because it has a longer time horizon, according to Fidelity.

New grandparent ‘loophole’

A new simplified Free Application for Federal Student Aid rolled out at the end of last year, with added benefits for grandparents who own 529 accounts for their grandchildren.

Under the old FAFSA rules, assets held in grandparent-owned 529 college savings plans were not reported on the FAFSA form, but distributions from those accounts counted as untaxed student income, which could reduce aid by up to half of that income.

As part of the FAFSA simplification, students no longer have to answer questions about contributions from a grandparent, effectively creating a “loophole” for grandparents to save for a grandchild’s college without impacting their financial aid eligibility.

Tax deductions or credits for contributions

Even before recent changes, there were already many advantages to a 529 plan. In more than half of all U.S. states, you can get a tax deduction or credit for contributions. Earnings grow on a tax-advantaged basis, and when you withdraw the money, it is tax-free if the funds are used for qualified education expenses.

A few states also offer additional benefits, such as scholarships or matching grants, to their residents if they invest in their home state’s 529 plan.

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Disability advocates sue Social Security and DOGE to stop service cuts

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A Social Security Administration (SSA) office in Washington, DC, March 26, 2025. 

Saul Loeb | Afp | Getty Images

A group of disability advocates filed a federal lawsuit against the Social Security Administration and the so-called Department of Government Efficiency on Wednesday aimed at stopping cuts to the agency’s services.

Recent changes at the Social Security Administration under DOGE — including staff reductions, the elimination of certain offices and new requirements to seek in-person services — have made it more difficult for individuals with disabilities and older adults to access benefits, the lawsuit argues.

The complaint was filed in the U.S. District Court for the District of Columbia.

The plaintiffs include the National Federation of the Blind, the American Association of People with Disabilities, Deaf Equality, the National Committee to Preserve Social Security and Medicare, the Massachusetts Senior Action Council and individual beneficiaries.

“The defendants’ actions are an unprecedented and unconstitutional assault on Social Security benefits, concealed beneath the hollow pretense of bureaucratic ‘reform,'” the complaint states.

In nine weeks, the new administration has “upended” the agency with “sweeping and destabilizing policy changes,” the plaintiffs claim, that have shifted agency functions to local offices while slashing telephone services.

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“The result is a systematic dismantling of SSA’s core functions, leaving millions of beneficiaries without the essential benefits they are legally entitled to,” the lawsuit complaint states.

The “mass restructuring” of the agency is unlawful and violates the Rehabilitation Act and the Administrative Procedure Act, the lawsuit argues. The changes also violate multiple constitutional provisions, including the First Amendment right to petition the government for redress of grievances, according to the plaintiffs.

With 1.1 million disability claims pending, the recent actions could also be life threatening to individuals who are dying or going bankrupt while waiting for decisions, they allege.

The Social Security Administration did not respond to CNBC’s request for comment.

“President Trump has made it clear he is committed to making the federal government more efficient,” White House spokesperson Liz Huston said in an email statement. “He has the authority to manage agency restructuring and workforce reductions, and the administration’s actions are fully compliant with the law.”

Lawsuit alleges reform is ‘administrative vandalism’

People hold signs during a protest against cuts made by U.S. President Donald Trump’s administration to the Social Security Administration, in White Plains, New York, U.S., March 22, 2025. 

Nathan Layne | Reuters

The Social Security Administration sends monthly checks to around 73 million Social Security and Supplemental Security Income beneficiaries.

DOGE, which is not an official government entity, has been tasked with cutting “waste, fraud and abuse” within the federal government. President Donald Trump issued an executive order creating DOGE on Jan. 20, the same day he was inaugurated.

Since then, the Social Security Administration has cut 7,000 employee positions and closed the Office of Civil Rights and Equal Opportunity and the Office of Transformation. The Office of Civil Rights and Equal Opportunity handled the agency’s equal employment opportunity and civil rights programs. The Office of Transformation was responsible for coordinating customer service-related initiatives like adding the ability to use digital signatures and electronic documents.

The Social Security Administration has also changed its identity proofing policies for claiming benefits and changing direct deposit information that is expected to require more individuals to visit the agency’s offices in person.

The agency has updated its policy, allowing individuals applying for Social Security Disability Insurance, Medicare, or Supplemental Security Income who cannot use a personal my Social Security account to complete their claim entirely over the telephone, starting April 14. 

The reforms amount to the dismantling of “core functions of SSA, abandoning millions of Americans to poverty and indignity,” according to the plaintiffs’ complaint.

“What the defendants frame as ‘reform’ is, in truth, administrative vandalism,” the lawsuit states.

Beneficiaries face long waits, overpayment issues

The plaintiffs include seven individuals whose experiences, including long customer service waits and, in some cases, demands to repay large sums to the Social Security Administration, are detailed in the complaint.

One plaintiff, Treva Olivero, who has been legally blind since birth, was informed in March 2024 that she had been overpaid Social Security disability insurance benefits for five or six years, prompting the agency to demand she repay more than $100,000, according to the complaint.

Olivero’s Medicaid coverage was also terminated soon after, which left her without income and health coverage. She has since been in an “ongoing struggle” to have her disability benefits reinstated, while also facing almost $80,000 in medical debt, according to the complaint.

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Another plaintiff, Merry Schoch, who received Social Security disability insurance for many years, returned to work to help pay for large medical bills after she was hit by a waste management truck in 2022. She reported her income to the Social Security Administration, and the agency made no changes to her benefit payments, according to the complaint.

Two years later, Schoch stopped working and reported her unemployment to the Social Security Administration. In August 2024, the agency then terminated her benefits and informed Schoch that she owed $30,000 for the disability benefit payments she received while working full time, according to the complaint.

Last September, Schoch was informed she could reapply for benefits. However, she has since struggled to get in touch with the agency over the phone, online and in person. 

Both Olivero and Schoch are members of the National Federation of the Blind, which is also a plaintiff.

The plaintiffs want the court to reverse the Social Security Administration’s recent reforms, including staff reductions, closures of certain offices and policies requiring in-person appointments.

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Amid trade turmoil, ‘you do not want to time the market’

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Pres. Trump unveils sweeping tariffs: Here's what to know

As President Donald Trump rolls out sweeping new tariffs on goods imported into the United States, Americans are growing increasingly pessimistic about their financial fate.

Consumers worry that the duties will cause inflation to flare up again, while investors fear that higher prices will mean lower profits and more pain for the battered stock market

As of Thursday morning, futures tied to the Dow Jones Industrial Average were down 1,200 points, or 2.8%. S&P 500 futures sank 3.4%, and Nasdaq-100 futures lost 4%.

But sharp drops — or sudden spikes — in the market are to be expected, according to Jean Chatzky, CEO of HerMoney.com and host of the podcast HerMoney with Jean Chatzky.

“With these volatile markets, you do not want to time the market,” she said of the old adage. “Timing the market doesn’t work — it’s time in the market.”

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Trade tensions, inflation and concerns about a possible recession have undermined consumer confidence across the board, several studies show.

Still, it’s normal for most Americans to feel unnerved during heightened volatility, Chatzky said.

“There’s very little doubt that consumers are feeling nervous, maybe more nervous than we’ve felt in quite some time,” she said.

Committing to setting money aside in a high-yield savings account, whether by scaling back on dining out or rideshare expenses, will help regain some financial control, Chatzky said.

Top-yielding online savings accounts currently pay 4.4%, on average, well beyond the savings account rates at some of the largest retail banks, which average just 0.41%.

“Taking action is the best way to feel more resilient,” she said.

It’s understandable why some may be hesitant to continue investing, however, when you are investing for the long term, a down market is an opportunity for dollar-cost averaging, which helps smooth out price fluctuations in the market, Chatzky said.

This is also a good time to check your investments to make sure you are still allocated properly and rebalance as needed, so you are not taking on more risk that you are comfortable with, she added.

Timing the market is a losing bet

Talk yourself down from making any sudden financial moves, Chatzky advised.

Trying to time the market is almost always a bad idea, other financial experts also say. That’s because it’s impossible to know when good and bad days will happen.

For example, the 10 best trading days by percentage gain for the S&P 500 over the past three decades all occurred during recessions, often in close proximity to the worst days, according to a Wells Fargo analysis published last year.

And, although stocks go up and down, the S&P 500 index has an average annualized return of around 10% over the past few decades.

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How to file for a free tax extension if you can’t make April 15 deadline

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Galina Zhigalova | Moment | Getty Images

If you can’t file your taxes by the April 15 deadline, there’s a free, easy way to submit a federal tax extension online, experts say.  

Nearly 1 in 3 American admit that they procrastinate when it comes filing their taxes, according to a January survey of more than 1,000 U.S. filers from IPX1031, an investment property exchange service. In addition, about 25% do not feel prepared to file their taxes, the survey found.

As of March 21, the IRS received roughly 80 million individual returns of the 140 million expected this filing season, the agency’s latest reporting shows.

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Many natural disaster victims have an automatic tax extension, which varies by jurisdiction. Military members serving in a combat zone also have more time to file. 

However, the federal tax deadline for the majority of taxpayers is April 15. It’s possible to push that due date to Oct. 15 by filing for an extension.

But “it’s an extension to file, not an extension to pay,” said Jo Anna Fellon, managing director at financial services firm CBIZ.

“It’s an extension to file, not an extension to pay.”

After the tax deadline, you will start incurring the failure-to-pay penalty of 0.5% of your unpaid taxes for each month or partial month that your taxes remain unpaid. The failure-to-pay penalty has a maximum charge of 25% of your unpaid taxes.

That’s cheaper than the failure-to-file penalty, which applies when you don’t submit your return by the deadline. The failure-to-file penalty is 5% of unpaid taxes monthly, also limited to 25%.

But you’ll also owe interest on your unpaid balance, which is currently 7% and accrues daily after April 15.

You can estimate your taxes owed by creating a “pro forma return” — or mock version of your filing — using as many tax forms as possible, Fellon said.

The ‘easiest way’ to file an extension

There are a few free options to file a tax extension.

For federal taxes, you can complete Form 4868 and mail it to the IRS. But it’s better to file digitally to avoid processing delays amid the agency’s shrinking workforce, experts say. Paper filing can also increase fraud risk, they say.

The “easiest way” is by choosing “extension” when making a payment for 2024, which automatically submits Form 4868, according to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

“It takes all of five minutes,” and you can double-check the transaction via your IRS online account, he said.

IRS Direct Pay

Internal Revenue Service

Alternatively, you can file your extension for free online via IRS Free File, a public-private partnership between the IRS and several tax software companies.   

For the 2025 season, you can use IRS Free File for returns if your adjusted gross income, or AGI, was $84,000 or less in 2024. But there’s no income limit to file an extension, Lucas said.

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