The $15.6 Billion College Savings Mistake
A new study from Wharton researchers James Li, Olivia Mitchell, and Christina Zhu reveals an uncomfortable truth for American families: 67% of 529 college savings accounts — holding 71% of all assets — are in suboptimal plans (Li, Mitchell, & Zhu, 2025).
In plain English, most families are paying too much in fees, missing out on tax advantages, or both. In 2020 alone, parents lost an estimated $15.6 billion in potential returns simply because they were in the wrong plan. This is equivalent to an 8% lifetime loss on their college savings (Li et al., 2025).
The surprising culprits
The research points to several systemic issues:
Advisor-sold plans dominate the suboptimal category, with higher fees and commissions that erode returns (Li et al., 2025, p. 158).
Families rarely switch — rollovers happen in less than 1% of accounts annually — so poor choices often stick for years (Li et al., 2025, p. 156). And with plan disclosures averaging 65 pages at a college-level reading complexity, the deck is stacked against busy parents.
Even in states offering tax deductions for in-state contributions, more than half of accounts and 60% of assets are still suboptimal (Li et al., 2025, Table 3A).
A bright spot for Oregon savers
Amid the bad news, there’s a silver lining for Oregonians: the study identifies Oregon’s 529 plan as optimal for its residents. With competitive fees, straightforward investment options, and a state tax deduction, Oregon families are well-positioned to avoid the costly pitfalls of 529 plan investing (Li et al., 2025, Appendix A).
Three keys to protect your college savings
Whether you live in Oregon or elsewhere, here’s how to make sure your plan is working for you:
Compare fees and options nationally: Look for total expenses under 0.20% (20 basis points) when possible.
Understand your state’s tax rules: Know whether your deduction applies only to in-state plans or to any plan.
Favor direct-sold simplicity:
Direct-sold plans are opened directly through the state or plan administrator, usually online. They typically offer low-cost investment options, often built around index funds, and avoid sales commissions or “loads.” You control your investment choices and don’t pay ongoing advisor fees.
Advisor-sold plans, by contrast, are purchased through a financial advisor or broker. While they may offer guidance, they almost always carry higher fees, sales charges, or both. The Wharton research found that suboptimal 529 plans are often advisor-sold, meaning those extra costs can significantly reduce long-term returns.
When in doubt, go Vanguard
If the process feels overwhelming, you’re not alone. The study shows that low transparency and high complexity lead to poor choices, even for savvy savers. When you’re unsure, a consistently strong option is Vanguard’s 529 College Savings Plan (Nevada), which combines low costs with broad availability.
References
Li, J. J., Mitchell, O. S., & Zhu, C. (2025). Suboptimal household investment and information-processing frictions: Evidence from 529 college savings plans. Journal of Financial Literacy and Wellbeing, 2(2), 142–170.
