Grads worry they'll never pay off student loan debt totaling $1.6T

As U.S. student loan debt continues to climb -- it reached a staggering $1.6 trillion this year -- the average college graduate is increasingly worried about paying it off.

According to a new study released by Fidelity Investments, about 40 percent of current students and recent graduates -- estimating that they'll owe $40,000 each -- feel the same way.

Forty percent of students, in hindsight, said they would begin saving earlier for college, and about 13 percent said they would attend a less expensive school in order to cut costs.

According to Fidelity, one option is a 529 college savings plan run by a state and intended to help families ensure they have money to cover college costs.

Although contributions are not tax-deductible on federal returns, they may be at the state level. Parents can also choose investment options to buoy returns on money for their child’s education and then make tax-free withdrawals. It’s named after Section 529 of the Internal Revenue Code, which created the accounts in 1996.

Currently, more than 30 states offer a full or partial tax deduction or credit for 529 plan contributions. Research also shows that children with 529 plans are three times more likely to attend college, and four times more likely to graduate.

Only 23 percent of respondents in the Fidelity study said they actually owned a 529 plan, however, and some reported built-in obstacles to amassing a college fund..

About 29 percent of respondents said their families didn’t make enough money, while 26 percent said the cost of college was higher than expected. Some 25 percent said they expected to receive more from grants or scholarships.

Respondents suggested researching scholarships and grants in order to offset costs, and starting to save as early as possible. About 34 percent believed that prospective students need to research and understand the implications of taking on student loans.