14 Best 529 College Savings Plans: Morningstar, 2022

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Morningstar research analysts reviewed 54 of the largest 529 college savings plans in the U.S. for its annual ratings, released this week. These represent approximately 93% of 529 plans, with accumulated savings of some $386 billion as of Aug. 31.

Morningstar’s qualitative analyst rating has five tiers. This year, analysts awarded two Gold ratings, 12 Silver, 20 Bronze, 16 Neutral and four Negative ratings to 529 plans. At the overall plan level, 529 ratings moves were modest, with only two downgrades and six upgrades.

Several themes stood out across the underlying ratings pillars, according to Patricia Oey, senior manager research analyst at Morningstar.

Vanguard-managed plans that use an age-based structure experienced Process rating downgrades to average. Oey explained in a blog post that these offerings now feature less attractive traits, such as an aggressive track that has above-average duration risk in and near enrollment, and conservative and moderate tracks that de-risk relatively early, which mean investors are less likely to keep pace with the rising costs of higher education.

Each state’s stewardship standards, as reflected in the Parent rating, continue to rise, with elements such as evidence of robust interaction between the state and its investment entity set as a baseline. Two states were upgraded and two downgraded within this context, according to Oey.

There is good news for 529 investors in the new ratings: fees continue to inch downward, falling from 0.48% in 2021 to 0.45% this year. Many plans continue to employ index funds and ETFs, when possible, which improve cost efficiency for investors.

This year’s 34 Gold-, Silver- or Bronze-rated plans offer investment options that should outperform, Oey said. They exhibit some combination of the following attractive features:

• A well-researched asset allocation approach
• A robust process for selecting underlying investments
• A well-resourced and experienced investment team
• Strong, stable and engaged oversight from the state
• Low fees

Of the remaining 20 plans Neutral or Negative, Oey noted that 11 are sold by advisors, and six of these carry Above Average Process ratings, indicating that they offer well-designed investment options. However, the compounding effect of high advisor fees can hinder performance and the total amount saved over the long term.

Negative-rated plans may exhibit a subpar asset-allocation approach, an unattractive lineup of underlying funds and/or high fees that reduce the odds of investor success, according to Oey.

See the gallery for the 12 college savings plans that earned Silver ratings and the two Gold-rated 529 college savings plans.

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