Theresa Kostrzewa isn't happy that her 16-year-old daughter is getting closer to college.
The past year's stock market drop has eroded more than $10,000 from the money Kostrzewa invested in a state 529 college-saving fund.
“I'm going to need it in two years,” she said. “Everyone says to be wise, start saving when they're little. I would have been better off putting it under the mattress.”
Most college-savings plans haven't dodged the Wall Street devastation – the Dow Jones industrial average is down 40 percent from its high a year ago. And some parents who planned ahead sit in the same nervous boat as retirees and other investors without the luxury of time to wait out a recovery.
If the downturn is prolonged, it also could hurt future generations' ability to afford college. Nationally, 529 plans had $109 billion invested last year. Preliminary figures from Financial Research Corp. show the value declined 9 percent last quarter – and that was before the recent stock slump.
The 529 plans offer tax breaks to encourage parents and grandparents to save money for children's tuition, books and other college expenses. While the money can be transferred to related beneficiaries such as younger siblings, the severe declines are worrisome for parents who will need the money soon.
“Even if you have a kid in middle school, if the account is down 20-to-30 percent, you have to be concerned,” said Brian Orol, president of Strategic Wealth Group in Raleigh. “Will you be back to where you were when they start school?”
Those who are even closer to starting college may have to make other adjustments.
The College Foundation of North Carolina managed assets of $397.2 million in 59,049 accounts as of Sept. 30, the latest figures available. The total fell sharply in September as stocks sank and parents pulled out money for the fall semester. But the amount was still up 10.8 percent from the same month last year.
Since Sept. 30, of course, the stock-market's sudden, historic skid has wiped out even more money set aside in the state's 15 plans.
“It's an investment like any other and we try to make sure people understand there are no guarantees,” said Jim Sutton, program services manager for the N.C. 529 plan. “We would love to be able to say you're not going to lose any money, but that's not the case.”
The state plan's administrators report a surge in calls from concerned parents. Some are shifting their money to more conservative options.
Others with younger children say they'll stick it out, hoping to recover losses.
“Everybody is down now,” said Walter Davis, an engineer in Raleigh who is putting money into a 529 account for his 8-year-old son. “It's still tax-free money and the economy is going to turn around.”
Sticking to it
The foundation's representatives cannot give financial advice, only information about the various funds and how 529 plans operate.
“We don't have the training or the background to go over someone's finances,” he added. “We don't have any knowledge about the rest of their financial situation.”
That annoys Kostrzewa, who believes that the state's sanctioning of the plans gives the appearance of stability.
The slumping national economy, floundering stock market and increasing jobless rate are expected to dampen parents' enthusiasm to save money for school. Experts often recommend parents first save for retirement, with the assumption that children can get government grants, cheap loans and other aid for college.