Parents face a tough set of choices these days. Job insecurity, declining home values, a weak economy and last year's capital market losses are just a few of the pressures on people hoping to save for their children's college education. A recent survey by Gallup and Sallie Mae found that roughly one-third of parents have reduced the amount they had been putting aside for college and an additional 15% were not saving for college at all.⁴

Given that a child born today could need over $200,000 to attend a four-year public college⁵—more than double current college costs—decisions made now could dramatically impact your ability to afford future college expenses.

Strategies and Considerations
Financial Aid: The Gallup/Sallie Mae survey found that roughly 35% of those not saving for college planned to use scholarships or financial aid instead,⁴ but parents aren't alone in facing economic and financial pressures. College endowments suffered alongside other investors in 2008, and states confronting large deficits have made drastic cuts in education spending. Higher fees, smaller enrollments and lower levels of financial aid are the consequences for this year's incoming freshman class.

Borrowing: Parents who have decided to focus on other savings priorities may plan to borrow when their child reaches college age. A hypothetical investing vs. borrowing example highlights a crucial problem with this plan: the enormous difference in cost.

To cover projected college costs, parents could wait until their child is 18 years old and borrow the money, paying interest for at least 15 years. Or, they could begin investing when their child is born, putting aside $418 a month in a tax-advantaged investment earning a hypothetical 8% annual return before taxes. In this example, they save over $215,000 by investing now, rather than borrowing later.⁶ All investments involve risk and are not guaranteed.

Investing in a 529 Plan: Taking steps toward a college savings goal need not require huge monthly contributions right now. One option that provides flexibility for contributions, along with many other features, is a 529 college savings plan.

Many 529 plans allow account owners to contribute as little as $50 to an account. Alternately, parents or grandparents who have sidelined a block of cash from volatile markets can contribute five years' worth of gifts (up to $65,000 for an individual or $130,000 if a married couple) to a 529 plan at once without owing a federal gift tax, as long as other gifts are not made to the same beneficiary over the five years. Note that generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. Gift examples are general; individual financial circumstances and state laws vary—consult a tax advisor before investing. If the contributor dies within the five-year period, a prorated portion of contributions may be included in their taxable estate. See the 529 disclosure document for more complete information.

Money invested in a 529 college savings plan grows federal income tax free and when withdrawn for qualified higher education expenses, earnings are free from federal income tax. 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.

Savings may be applied to tuition, fees, required books, supplies and equipment, and room and board if the beneficiary is enrolled at least half time. The beneficiary can attend any university, college or vocational school accredited by the U.S. Department of Education, including many educational institutions outside the United States. And unlike some other college savings vehicles, a 529 account owner—not the beneficiary—maintains control of the assets, including how and when they will be used.

A Smarter Way to Invest for College^®
Franklin Templeton 529 College Savings Plan, offered nationwide by the New Jersey Higher Education Student Assistance Authority,⁷ can be a smarter way to invest for college. Investors can open a plan with just $250. If you elect to participate in our automatic investing plan, you can open a plan for as little as $50, and the $25 annual account fee is waived.⁸

The plan itself offers three actively managed allocation strategies, encompassing 16 different portfolios, to meet your individual investment needs:⁹

• Age-Based Asset Allocations. Portfolios based upon the beneficiary's age, which are automatically reallocated as he or she ages.
• Objective-Based Asset Allocations. Portfolios designed to reflect the amount of risk you are comfortable taking and the potential return characteristics you prefer.
• Customized Strategy. Choose from one or a combination of individual portfolios that range from growth allocations to more conservative income portfolios.

Speak to your financial advisor, who can help you lay the groundwork for an investment plan that helps you reach your college savings goals.

Additional plan benefits and investment details are described in the Investor Handbook. Investors should carefully consider 529 Plan and/or mutual fund investment goals, risks, charges and expenses before investing. To obtain the Investor Handbook or mutual fund prospectuses, which contain this and other information, talk to your financial advisor or call Franklin Templeton Distributors, Inc., the manager and underwriter for the Plan at (800) 818-4030. You should read the Investor Handbook and/or mutual fund prospectuses carefully before investing and consider whether your or the beneficiary's home state offers any sate tax or other benefits that are only available for investments in its qualified tuition program.

Each plan account is subject to a $25 annual maintenance fee, an annual program management fee of 0.40% of assets, underlying fund expenses, currently up to 0.84% of assets, which may vary, and sales charges, which vary by class of shares. See the Investor Handbook for more complete information.