The market for 529 college savings plans is expected to grow at a compounded rate of 50% each year, reaching the $51 billion mark in the next five years, according to a report released this month by Cerulli Associates, a Boston consulting firm.
The report, titled "The state of the College Savings Market: 529 Plans in Perspective," said that more than 40 financial services firms are now distributing and managing 529 plans. "The rapid entry of so many providers is breeding intense competition to attract 529 assets," the report said. "This competition will, in turn, make it difficult to achieve scale and profitability in the 529 market over the short term."
Through 2006, Cerulli expects 529 account sizes will remain relatively small, growing to about $15,600 during that time. Currently, about 70% of accounts are less than $5,000. Those smaller accounts will likely make it difficult for companies to increase their profit margins, the report said.