Investing

As protections and relief options for federal student loan borrowers grow, refinancing your debt may be a riskier move than it once was, consumer advocates warn.
“We have seen, time and time again, private student loan borrowers left out of many of the programs they really need,” said Persis Yu, deputy executive director at the Student Borrower Protection Center.

D3sign | Moment | Getty Images

As the affordable options and relief measures for federal student loan borrowers pile up, consumer advocates advise caution before refinancing your debt.
“How’s this for a warning? DON’T!” Betsy Mayotte, president of The Institute of Student Loan Advisors, wrote in an email to CNBC.

Refinancing your federal student loans turns them into a private student loan and transfers the debt from the government to a private company. Borrowers usually refinance in search of a lower interest rate.
However, many people don’t realize what they’re getting into, said Persis Yu, deputy executive director at the Student Borrower Protection Center.
“We’ve seen aggressive marketing by a number of private lenders to try to lure folks away from the federal student loan space,” Yu said. “And we have seen, time and time again, private student loan borrowers left out of many of the programs they really need.”
More from Personal Finance:Interest rates on federal student loans may increase by 1 percentage pointIRS: Time to claim $1 billion in tax refunds from 2020 expires May 17New grads may have a harder time landing their dream job
Mayotte has witnessed the same: “Borrowers who refinance their federal loans into private forever lose access to the safety nets and lower payment options unique to federal loans.”

David Green, CEO of Earnest, an online lender, said that refinancing can be “life-changing” for those who are excluded from the government’s relief options because of their earnings or other reasons.
“Consider taking advantage of [forgiveness] before looking at refinancing,” Green said.
“While we can’t predict the future of forgiveness options, if you make above the initial salary limit the federal government proposed, or otherwise don’t qualify for a loan forgiveness program, then refinancing might be a good option to explore,” he said.
“You may spend less time paying off your loan, or have a more reasonable monthly payment, which can save a significant amount in interest over the life of your loan,” Green added.

Refinancing is risky ahead of Plan B forgiveness

Consumer advocates have long pointed out that private lenders don’t provide the same range of relief options as does the U.S. Department of Education. (For example, federal student loan borrowers can pause their payments if they become unemployed, return to school or get cancer.)
But advocates have fresh warnings now as the Biden administration reforms the federal student loan system.
While President Joe Biden has been in office, the Education Department has cleared the federal education loans of nearly 4.6 million people, totaling almost $160 billion in aid. Most of that relief came through expanding access to relief programs.
Millions more federal student loan borrowers could receive debt forgiveness in the coming months if Biden’s revised relief package survives legal challenges this time.
Immediately after the Supreme Court blocked the president’s first aid package, his administration began working on a Plan B. More than 25 million borrowers still stand to benefit from the program, including those who’ve been in repayment for decades or seen their balance grow from interest.

Borrowers lose access to relief programs

Borrowers who refinance their loans lose their eligibility for the government’s debt cancellation, Mayotte said.
One potential loss is no longer qualifying for the Public Service Loan Forgiveness program, she said. PSLF allows certain not-for-profit and government employees to have their federal student loans cleared after 10 years of on-time payments.
“I’ve worked with too many borrowers who have done [refinancing] only to find out their loans would have been forgiven under PSLF,” Mayotte said.

Mayotte also recently heard from one borrower who said they’d refinanced based on advice from their financial advisor — and as a result, missed out on having their more than $400,000 balance forgiven when the Education Department excused 317,000 former Art Institute students of their debts earlier this month.
“[It] was heartbreaking,” Mayotte said.
The U.S. Department of Education, which reviewed evidence provided by the attorneys general of Iowa, Massachusetts and Pennsylvania, concluded that the for-profit Art Institute chain of schools and its parent company, the Education Management Corp., or EDMC, made “pervasive and substantial” misrepresentations to prospective students about post-graduation employment rates, salaries and career services.

Repayment options are a ‘huge, huge difference’

Income-driven repayment plans, meanwhile, allow federal student borrowers to pay just a share of their discretionary income toward their debt each month. The plans also lead to debt forgiveness after a certain period, usually somewhere between 10 and 25 years.
Most recently, the Biden administration introduced a repayment plan that lowers the percentage borrowers need to pay of their earnings to 5%, compared with 10% or more under existing programs. The new option, called The Saving on a Valuable Education, or SAVE plan, will leave some people with a monthly bill of $0.
“There is no right to an affordable repayment plan with private student loans, and that’s a huge, huge difference between the federal student loan space and the private loan space,” Yu said.

Much lower interest rate not a guarantee

The top reason people refinance their federal student loans is to pick up a lower interest rate. But that may not be so easy to do right now, said higher education expert Mark Kantrowitz.
“Interest rates are high,” Kantrowitz said, estimating that those who refinance pick up a rate between 5% and 11%. (The rates on federal student loans for the 2024-2025 academic year will range from roughly 6.5% to 9%.)

Refinancing likely only makes sense for borrowers with the best credit — a score above 800 — since they’re the only ones likely to gain a significantly lower interest rate, Kantrowitz added.
Still, any borrower considering the move should look closely at what protections and possible forgiveness opportunities they’re forfeiting, he said.

Don’t miss these exclusives from CNBC PRO More

Collectively, Americans owe $1.12 trillion on their credit cards, the Federal Reserve Bank of New York reported Tuesday.
The average credit card balance is now $6,218, a new report by TransUnion found.
As consumers lean on their credit cards, more borrowers are also falling behind on their payments, both reports show. 

Keeping up with credit card debt is getting more difficult.
Americans now owe $1.12 trillion on their credit cards, the Federal Reserve Bank of New York reported Tuesday.

The average balance per consumer stands at $6,218, up 8.5% year over year, according to a separate quarterly credit industry insights report from TransUnion.
“Consumers continue to use credit, and in particular credit cards, as they navigate the world we face right now,” said Charlie Wise, TransUnion’s senior vice president of global research and consulting. 

Higher prices and higher interest rates have put many households under pressure and prices are still rising, albeit at a slower pace than they had been.
The consumer price index — a key inflation barometer — has fallen gradually from a 9.1% pandemic-era peak in June 2022 to 3.4% in April.
Young adults, especially, have had to stretch financially to cover rising rents, ballooning student loan balances and larger auto loan payments, Wise said.

“Rent, when you have it, auto loans, utilities, these are all things consumers prioritize ahead of credit cards,” Wise added.
As a result, credit card delinquency rates are higher across the board, the New York Fed and TransUnion found. Over the last year, roughly 8.9% of credit card balances transitioned into delinquency, the New York Fed reported.
According to TransUnion’s research, “serious delinquencies,” or those 90 days or more past due, reached the highest level since 2010.
More from Personal Finance:More Gen Z cardholders are maxed out, New York Fed findsAmericans can’t stop ‘spaving’ — how to avoid this financial trapShoppers embrace ‘girl math’ to justify luxury purchases
Overall, an additional 19.3 million new credit accounts were opened in the fourth quarter of 2023, boosted in part by subprime borrowers looking for cards with higher limits, according to Wise. Subprime generally refers to those with a credit score of 600 or below, according to TransUnion. 
“Although access to credit and loans can provide a lifeline for families struggling to meet basic needs, relying too much on these financial coping strategies may lead to financial instability if families have a hard time keeping up with debt or do not recover from using savings not intended for routine expenses,” said Kassandra Martinchek, senior research associate at the Urban Institute. 

This is ‘your highest-cost debt by a wide margin’

Credit cards are one of the most expensive ways to borrow money. The average credit card charges a near-record 20.66%, according to Bankrate.
“If you have credit card debt, this is probably your highest-cost debt by a wide margin,” said Ted Rossman, Bankrate’s senior industry analyst. “Paying it down needs to be a household priority.”
With an average annual percentage rate of 20%, if you made minimum payments toward the average credit card balance, which currently stands at $6,218, according to the TransUnion report, it would take you 18 years to pay off the debt and cost you more than $9,200 in interest, Rossman calculated.
“Try to pay way more than the minimum — pay it all if you can,” Rossman said.
Otherwise, switch to an interest-free balance transfer credit card “to pause the interest clock for up to 21 months,” he advised, “or take on a side hustle, sell stuff you don’t need or cut your expenses in order to dedicate more money to your debt payoff efforts.”
Subscribe to CNBC on YouTube.

Don’t miss these exclusives from CNBC PRO More

Incentives are coming back to the auto market, but interest rates remain high.
However, car shoppers can still reap the benefits. It will require more research and flexibility.
“Consumers can find good deals, but you have to go model by model,” said Brian Moody, executive editor at Kelley Blue Book.

Simonskafar | E+ | Getty Images

Incentives are coming back to the auto market, but high interest rates are weakening those deals for car shoppers.
“Pre-pandemic, people would see a 0% financing for 60 months and think, ‘no big deal,’ because it was available everywhere,” said Jessica Caldwell, an insights analyst at Edmunds, an auto research site.

In today’s market, consumers are more likely to see it as “free money,” she said, especially as auto loan rates stay high.
The average annual percentage rate for a new car loan was 7.1% in the first quarter of 2024, marking the fifth month in a row of rates more than 7%, according to Edmunds.
The APR for used car loans rose 11.7% in the same period, up one-tenth of a percentage point from the prior quarter.
More from Personal Finance:’529 plans are better now than they’ve ever been,′ expert saysHere’s the inflation breakdown for April 2024 — in one chartBiden, Trump face ‘massive tax cliff,’ experts say
Despite high borrowing costs, car shoppers can still reap some benefits from reintroduced financing offers and other incentives like discounts and dealer cash. But shoppers must to do more research than in that earlier era to find those deals, experts say. 

“Consumers can find good deals, but you have to go model by model,” said Brian Moody, executive editor at Kelley Blue Book.

Be cautious about longer loan terms

Financing offers depend in part on the loan term. You might get a better interest rate with a short term, but a lower monthly payment with a long term.
While extending the life of the loan can help shrink monthly costs, you risk owing more than what the car is worth, which can create more financial problems later on, experts say.
“The negative equity situation is real,” Edmunds’ Caldwell said.
Shoppers must be realistic about how long they plan to keep the car, Caldwell explained.
If you’re someone who buys a new car every three to four years, you might end up in a situation when you trade in that your vehicle and is worth less than you owe, she said.
The share of new car purchases in that situation — known as a negative-equity trade-in — rose to 23.1% in the first quarter, according to Edmunds. That’s up from 18.3% from a year ago and 14.7% in the first quarter of 2022.
The average amount of negative equity jumped to an all-time high of $6,167 in the first quarter, researchers found.

When you roll that into your new car loan, it increases your payment.
The average monthly payment for new car shoppers who traded in underwater loans was $887 in the first quarter, according to Edmunds. The average APR was 8.1% for a term length of 75.8 months.
When you’re comparing financing options, instead of only focusing on lowering the monthly payment, be sure to figure out the total interest you will be paying, experts say.
“That’s where you have to be cognizant,” Caldwell said. “Longer loan terms will always look more attractive because they’re more affordable, but that’s really only part of the story.”
According to Moody: “The quicker you pay it off, the less interest you’re paying.”

What to do before you go to the auto dealer

1. Search for available incentives: Car shoppers will have to a do lot more shopping and research to find available incentives, Caldwell said.
“There are deals creeping out there,” she said. “There was a point two years ago where there just wasn’t any; no deals to be had.”
Seek out models that are not in high demand, as automakers and dealers “rarely incentivize popular” models, Moody said.
“There might be cash back or low financing on one type of Ford, but on [another] type, there’s nothing,” Moody said. “It makes it more challenging for consumers because you really have to go and do your research.” 
2. Know your credit score: While shoppers might come across 0% financing offers, those deals are often reserved for buyers with excellent credit. Find out what your latest score is to avoid getting stuck into deals you didn’t fully understand, Moody explained.

3. Get pre-qualified for different loans: Shop around for auto loans at different banks or credit unions before going to the dealer, experts say.
That lets you determine what kind of interest rate you’re able to get and compare offers, Moody said.
Don’t limit yourself to comparing the monthly payments. Consider the amount of interest you will be paying over the life of the loan, Caldwell said.
Having these options will also help you negotiate with dealers.
“Always give the dealer the opportunity to beat that deal in terms of interest rate and the loans terms, and oftentimes, they can,” Moody said. “If they can’t, you already have this loan.”

Don’t miss these exclusives from CNBC PRO More

New government data shows inflation may be showing signs of easing. That may be good news for retirees and people approaching retirement.
The Social Security cost-of-living adjustment, or COLA, may be 3.2% in 2025 based on the latest government inflation data, according to one estimate.
Two risk factors determine how much those groups are affected by high inflation, new research finds.

Lourdes Balduque | Moment | Getty Images

High inflation eased slightly in April, which may provide some relief to consumers who have been contending with elevated prices.  
For retirees and people approaching retirement, higher than normal inflation poses unique challenges.

Most retirees have access to one of the few inflation-adjusted sources of income — Social Security — that is adjusted every year to keep pace rising costs.
This year, Social Security beneficiaries saw a 3.2% increase to their benefits.
The Social Security cost-of-living adjustment may also be 3.2% in 2025 based on the latest government inflation data, estimates Mary Johnson, an independent Social Security and Medicare policy analyst.
That estimate may change between now and October, when the Social Security Administration announces next year’s cost-of-living adjustment, or COLA. The average Social Security COLA has been 2.6% over the past 20 years, according to The Senior Citizens League.

While Social Security benefits are keeping pace with price increases, the effects may vary for individuals depending on their personal expenses and where they live, noted Laura Quinby, senior research economist at the Center for Retirement Research at Boston College.

“It’s getting ninety percent of the way there for most households every year, which is just incredibly valuable,” Quinby said.
Yet even with inflation-adjusted benefits, retirees have struggled with higher prices since inflation rose in 2021. And near-retirees have also faced challenges planning for a new life phase amid a rising cost of living.
That can both reduce their current spending and diminish their accumulation of wealth for the future.
New research from the Center for Retirement Research looks at exactly how inflation has impacted people who fall in those groups — near-retirees under age 62 and retirees ages 62 and up.
Two factors determine how well they can manage inflation’s shocks — whether their income and investments can keep pace with rising prices, and the amount of fixed-rate debt they have, the research found.

How inflation affects household wealth

Inflation impacts an investor’s portfolio assets.
While bonds and fixed-income assets may see price increases, equities may do well, so long as the economy avoids a recession, according to the CRR research.
Households with more wealth tend to fare better amid high inflation, because they’re more likely to be invested in stocks and businesses that continue to grow in value.
Retirees tend to have most of their income from either Social Security or defined benefit pensions. While Social Security is adjusted for inflation, pensions generally are not — a disadvantage for retirees who rely on them.
More from Personal Finance:As Social Security’s funds face insolvency, here’s what to watchWhy most of Warren Buffett’s wealth came after age 65Advice about 401(k) rollovers is poised for a big change. Here’s why
Near-retirees are more likely to rely on earnings from work. If their salaries do not keep up with inflation, they are more likely to be affected by higher costs.
More affluent near-retirees may have other sources of income from investments or businesses that grow with inflation. Others may already be collecting pension income.
Households with fixed-rate mortgage debt are at an advantage, since their monthly payments stay the same even as inflation rises. Near-retirees tend to benefit from that, since they are more likely still have mortgages compared to retirees.

How older households react to inflation

When inflation prompts higher costs, it can have a negative impact on both immediate consumption and how much goods and services a household can buy, as well as future consumption, Quinby noted.
Many households tend to cut back on savings and increase withdrawals to try to lift themselves to where they were before inflation picked up.
“But it comes at a cost, which is that they take they take a big hit to their future wealth by doing that,” Quinby said.

Near-retirees who are still working have more flexibility to adjust to higher inflation compared to retirees, since they’re likely to see wage gains.
Pre-retirees who stay in the work force may be able to make up for lost savings if they’re able to catch a time when wages overshoot inflation, Quinby said.
However, just 4% of near-retirees surveyed for the research changed their retirement age in response to inflation, with a four-year average expected delay. Among all near retirees, 34% adjusted their retirement date.
Retirees have less flexibility to address the effects of high inflation. But where they can, they can take advantage of higher interest rates by reinvesting fixed-income investments that may be earning less, the research suggests. More

The consumer price index rose 3.4% in April from a year earlier, a decrease from 3.5% in March, according to the Bureau of Labor Statistics.
Gasoline and housing prices put upward pressure on inflation, while prices for categories like groceries and new and used cars fell in April.
Consumer buying power rose over the past year as inflation moderated.

Grace Cary | Moment | Getty Images

Inflation fell slightly in April as easing price pressures for groceries and other areas of consumer balance sheets were partially offset by higher gasoline prices and stubbornly high housing costs.
The consumer price index, a key inflation gauge, rose 3.4% in April from a year ago, the U.S. Labor Department reported Wednesday. That’s down from 3.5% in March.

The report “is consistent with inflation, while still uncomfortably high, slowly coming back to earth,” said Mark Zandi, chief economist at Moody’s Analytics.

The CPI gauges how fast prices are changing across the U.S. economy. It measures everything from fruits and vegetables to haircuts, concert tickets and household appliances.
The April inflation reading is down significantly from its 9.1% pandemic-era peak in 2022, which was the highest level since 1981. However, it remains above policymakers’ long-term target, around 2%.
The decrease in April marks progress in the inflationary fight, which had somewhat flatlined in the first quarter of the year after falling consistently through much of 2023.

The inflation trend line will determine how soon Federal Reserve officials start throttling back interest rates, which influence borrowing costs for consumers and businesses.

“After getting stuck at the beginning of the year, we’re starting to see [inflation] moderate again,” Zandi said. “And I expect to see that going forward.”

Food inflation has ‘basically gone to zero’

Gasoline prices increased 2.8% in the month from March to April, a rise from 1.7% the prior month, the Bureau of Labor Statistics said.
“You saw prices at the pump rise again in April,” said Michael Pugliese, a senior economist at Wells Fargo Economics.
Average U.S. gasoline prices jumped about 13 cents in April, to $3.65 a gallon as of April 29, according to weekly data published by the U.S. Energy Information Administration.

That increase is largely due to dynamics in the market for crude oil, which is refined into gasoline, economists said. Higher fuel prices can filter through to many other areas of the economy since they factor into transportation and distribution costs for goods, for example.
Gas prices have since retreated a bit to $3.61 per gallon as of May 13, according to the EIA.
Among other consumer staples, grocery prices decreased by 0.2% from March to April, meaning they deflated rather than inflated, according to the CPI data. “Food at home” prices rose 1.1% in the past year.
“Food inflation has basically gone to zero,” Zandi said. “I think that’s really important for most American families, not only for their own financial situation but because of how they perceive the economy.”

Progress on housing has been slow

Economists generally like to consider an inflation measure that strips out energy and food prices, which can be volatile, to determine prevailing inflation trends. That reading, known as the “core” CPI, fell to an annual 3.6% in April from 3.8% in March.
Shelter, the largest spending category for the average household, is by far the biggest component of the “core” CPI. Annual housing inflation declined to 5.5% in April from 5.7% in March.
More from Personal Finance:GameStop, AMC rallies like ‘watching a sitcom on repeat’Education Dept. announces highest federal student loan interest rate in over a decadeBiden, Trump face ‘massive tax cliff’ amid budget deficit
Positive data trends like moderating prices for newly signed rental leases suggest housing inflation should continue to ease, economists said. However, that process hasn’t happened as quickly as expected.
“It’s one of the reasons we’ve seen slow progress” in the inflation fight, said Stephen Brown, deputy chief North America economist at Capital Economics.
Shelter and gasoline inflation combined contributed more than 70% of the monthly CPI increase for all items, according to the BLS.

Other “notable” areas in core inflation over the past year include motor vehicle insurance (prices are up 22.6%), personal care (3.7%), medical care (2.6%) and recreation (1.5%).
Meanwhile, other consumer categories have seen improvement.
For example, prices for new and used vehicles decreased 0.4% and 6.9% in the past year, respectively. Those lower costs should filter through to help motor vehicle insurance inflation fall, too, economists said.

Supply and demand imbalances

At a high level, imbalances in supply and demand are what trigger out-of-whack inflation.
For example, the Covid-19 pandemic disrupted supply chains for goods. Americans’ buying patterns also simultaneously shifted away from services — such as entertainment and travel — toward physical goods since they stayed at home more, driving up demand and fueling decades-high goods inflation.
Those dynamics have largely unwound, economists said. Rather, inflation is now “more of a services story than it is a goods story,” Pugliese said.
Wage growth has been one contributor to services inflation, for example, economists said.

The services sector of the U.S. economy tends to be more sensitive to labor costs. Record-high demand for workers as the pandemic-era economy reopened pushed wage growth to its highest level in decades; the labor market has since cooled and wage growth has declined, though remains above its pre-pandemic level.
“Until we observe meaningful signs of deterioration in either the labor or housing markets, we expect continued stickiness in inflation measures,” Joe Davis, global chief economist at Vanguard, wrote Tuesday.
Wage growth has surpassed the inflation rate over the last year, meaning consumers have been able to buy more with their paychecks. So-called real average hourly earnings rose 0.5% from April 2023 to April 2024.

Don’t miss these exclusives from CNBC PRO More

The U.S. Department of Education is giving borrowers more time to meet a key student loan forgiveness deadline.
Those who request a so-called loan consolidation by June 30 — which will combine their federal student loans into one new federal loan — could get their debt canceled sooner than they would have otherwise.
Previously, the deadline to qualify for the Biden administration’s account adjustment was April 30.

President Joe Biden delivers remarks on canceling student debt on February 21, 2024 in Culver City, California.
Mario Tama | Getty Images News | Getty Images

The U.S. Department of Education is giving borrowers more time to meet a key student loan forgiveness deadline.
Those who request a so-called loan consolidation by June 30 — which will combine their federal student loans into one new federal loan — could get their debt canceled sooner than they would have otherwise. Some could even see their debt forgiven immediately.

Previously, the deadline to qualify for the Biden administration’s account adjustment was April 30.
“The Department is working swiftly to ensure borrowers get credit for every month they’ve rightfully earned toward forgiveness,” U.S. Under Secretary of Education James Kvaal said in a statement Wednesday.
More from Personal Finance:Americans can’t stop ‘spaving’ — how to avoid this financial trapAmericans are splurging on travel and entertainmentShoppers embrace ‘girl math’ to justify luxury purchases
Until June 30, borrowers enrolled in an income-driven repayment plan who consolidate will get a one-time adjustment on their payment count.
They’ll earn credit toward all their loans based on the one they have been making payments on the longest, as well as for certain periods that previously didn’t count, including certain months spent in deferments or forbearances.

Borrowers pursuing the popular Public Service Loan Forgiveness program can also receive additional credit from the payment count adjustment, as long as they certify their qualifying employment for those months.
The payment count adjustment is an attempt to rectify longstanding issues for student loan borrowers.
The Biden administration said in 2022 it would review the accounts of those in income-driven repayment plans, which are supposed to lead to debt cancellation after a set period.
Its announcement followed evidence, including a 2022 U.S. Government Accountability Office report, showing borrowers weren’t always getting a proper accounting of their payments. The Consumer Financial Protection Bureau also found that borrowers were needlessly steered into expensive forbearances, during which interest accrues and credit toward forgiveness is paused.

How the payment count adjustment helps borrowers

Usually, a student loan consolidation restarts a borrower’s forgiveness timeline, making it a terrible move for those working toward cancellation, education experts say.
Now, consolidating to take advantage of the temporary payment count adjustment opportunity is an especially good deal for borrowers who’ve been paying off loans for many years, and for those who carry multiple loans from different time periods. Now all those loans could be soon forgiven.

For example, say a borrower graduated from college in 2004, took out more loans for a graduate degree in 2018 and is now in repayment under an income-driven plan with a 20-year timeline to forgiveness. Consolidating could lead them to immediately qualify for forgiveness on all of those loans, experts say, even though they’d normally need to wait at least another 14 years for full relief.

Read: Education Dept. announces highest federal student loan interest rate in more than a decade

How to check if you’d benefit from consolidation

“Everyone who thinks there is even a possibility they may be eligible should take the time to find out,” said Jane Fox, the chapter chair of the Legal Aid Society’s union. “It is a quick phone call or a check of a website that could mean full cancellation of your student debt.”

You can apply for a Direct Consolidation Loan at StudentAid.gov or with your loan servicer. It should take under 15 minutes to do so, Fox said.
All federal student loans — including Federal Family Education Loans, Parent Plus loans and Perkins Loans — are eligible for consolidation, said higher education expert Mark Kantrowitz.
“If a borrower ends up with more payments than required for forgiveness, the extra payments may be refunded in some circumstances,” Kantrowitz said. More

One of the recent changes to 529 college savings plans is that money can now be converted into a Roth individual retirement account tax-free after 15 years.
There are also higher contribution limits for 2024, a “loophole” for grandparent-owned accounts and potential tax savings, depending on the plan.
Here’s what you need to know.

As the costs at some colleges near $100,000 a year, families need a savings strategy they can bank on.
Financial experts and plan investors agree that 529 college savings plans are a smart choice for many. And, as of 2024, there are even more benefits, including higher contribution limits and the flexibility to roll unused money into a Roth individual retirement account free of tax penalties.

“There are three pretty significant changes this year,” said Vivian Tsai, senior director of education savings at TIAA and chair emeritus for the College Savings Foundation, a nonprofit that provides public policy support for 529 plans.
Whether the funds are for college or vocational studies, she said, “529 plans are better now than they’ve ever been before and they’re more flexible.”
Here’s a breakdown of everything you need to know.

Benefits of a 529 college savings plan

1. 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.

2. New Roth IRA rollover rules
As of 2024, families can roll over unused 529 plan funds to the account beneficiary’s Roth IRA, without triggering income taxes or penalties, as long as the 529 plan has 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 for each plan beneficiary, as well as another $10,000 for each of the beneficiary’s siblings.
More from Personal Finance:Ed Dept. announces highest student loan interest ratesIncoming college students may owe $37,000 by graduationStudents are still waiting on financial aid amid FAFSA issues
Previously, tax-advantaged withdrawals were limited to qualified education expenses, such as tuition, fees, books, and room and board. The restrictions loosened in recent years to include continuing education classes, apprenticeship programs and student loan payments. But now, 529s offer much more flexibility, even for those who never go to college, Chris Lynch, president of tuition financing at TIAA recently told CNBC.
“A point of resistance that potential participants have had is the limitation around, what happens if my kid gets a scholarship or decides they’re not going to college,” Lynch said.
In the latter 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.
However, the added benefit of being able to convert any leftover funds into a Roth IRA tax-free after 15 years, up to a limit of $35,000, “helps to eliminate that point of resistance,” he said.
3. Higher maximum contribution limits
The amount you can contribute to a 529 plan is higher in 2024. 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, up from $17,000 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 in a single 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.
“If you have the means, that’s a big deal,” Tsai said.
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.
4. 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 fund a grandchild’s college fund without impacting their financial aid eligibility.
“In 2024, the grandparent penalty goes away, so 529 plans prove themselves, once again, to be a really exceptional way to save,” Tsai said.
Subscribe to CNBC on YouTube. More

The median down payment on a home purchase was $26,000 in the first quarter of 2024, or an average of 13.6%, reaching a new first-quarter high, according to a new report by Realtor.com.
While 20% is considered to be the standard, it is by no means “the law of the land.”

Tetra Images | Tetra Images | Getty Images

Consumers are putting down more money to buy a home — but the typical down payment is still much less than you might expect.
The average down payment was 13.6% in the first quarter of 2024, according to a new report by Realtor.com. The median down payment amount was $26,000.

Both figures are up year over year but down from peaks in the third quarter of 2023, the report says. At that point, buyers put down an average of 14.7% or a median of $30,400.
More from Personal Finance:Your home sale could trigger capital gains taxes — how to calculate your billFewer homeowners are remodeling, but demand is still ‘solid’Inflation is slowing. Here’s why prices still aren’t going down
Even at recent elevated levels, the average down payment is still well below 20%, a share that people typically think of as the gold standard when buying a home.
But 20% is not always necessary, experts say.
There are a lot of reasons why people have gravitated toward the idea of putting 20% down, like trying to avoid mortgage insurance or lessen monthly payments, said Mark Hamrick, senior economic analyst at Bankrate.com.

“But by no means is this essentially the law of the land,” Hamrick said.

Putting 20% down is ‘definitely not required’

One way to reduce your monthly mortgage payment is by putting down more money and borrowing less. But for many households, trying to get a higher down payment can be challenging, said Danielle Hale, chief economist at Realtor.com.
“It really showcases the conundrum the housing market is in where there’s not a lot of affordability,” she said.
Having enough savings for a down payment is a big hurdle for most buyers. Close to 40% of Americans who don’t own a house point to a lack of savings for a down payment as a reason, according to a 2023 CNBC Your Money Survey conducted by SurveyMonkey. More than 4,300 adults in the U.S. were surveyed in late August for the report.
Rising home prices make that 20% goal especially daunting. But the reality is, you don’t need 20%, experts say.
“Not only is it possible to buy a home with less than 20% down, but this data show that a majority of buyers are in fact doing so,” Hale said. “It’s definitely not required.”
Nationally, the average down payment on a house is closer to 10% or 15%, Hale said. In some states, the average is well below 20% while some are even below 10%, she added.

Some loans and programs are available to help interest buyers purchase homes through lower down payments.
For example, the Department of Veterans Affairs offers VA loan programs that enable those who qualify to put down as little as 0%. Loans from the U.S. Department of Agriculture, referred to as USDA loans, are geared toward helping buyers purchase homes in more rural areas, and they also offer 0% down payment options.
Federal Housing Administration loans, which can require as little as 3.5% down for qualifying borrowers, are available to first-time buyers, low- and moderate-income buyers, as well as buyers from minority groups. Those are “designed to help close homeownership gaps among those targeted populations,” Hale said.
Even with a conventional loan, buyers’ required down payment could be between 3% and 5%, depending on their credit score and other factors.
“There are options,” Hale said.

A small down payment can be a ‘mixed bag’

When you’re deciding how much of a down payment you can afford, tread carefully: There can be added costs associated with smaller upfront payments. While a lower down payment is one way to “attack affordability challenges,” it can be a “mixed bag,” Hamrick said.
With a lower down payment, you will need to borrow more from your lender, which raises the monthly cost of your mortgage, Hale said. A smaller down payment can also mean you don’t qualify for a lender’s best-available interest rate.
When you borrow more than 80% of a home’s value, you may also face the added cost of private mortgage insurance, or PMI.

PMI, generally, can cost anywhere from 0.5% to 1.5% of the loan amount per year, depending on factors like your credit score and down payment amount, according to The Mortgage Reports.
For example, on a loan for $300,000, mortgage insurance premiums could cost around $1,500 to $4,500 annually, or $125 to $375 a month, the site found.
Typically, your lender will cancel your mortgage insurance automatically once you reach 22% equity. You can request it to be removed after you reach 20% equity.
In some cases, buyers might choose to do what’s called a “piggyback mortgage,” or get a second mortgage to meet the 20% threshold and not have to pay for mortgage insurance, Hale said.
But, that second loan tends to have a higher mortgage rate, she said.
Correction: A previous version of this article misstated the name of the Federal Housing Administration.

Don’t miss these exclusives from CNBC PRO More