Growing List of States Offering Free Money for 529 College Savings Plans
Posted By Monica Harvin on February 25, 2016 at 12:45 pm
Massachusetts Treasurer, Deb Goldberg, recently announced a new state-run college savings program that would take saving for college to every kindergartener in the state. Students enrolled in kindergarten in the state’s public schools would automatically receive a 529 college savings account, a move that could serve to increase the number of low-income students with access to 529 college savings as well as push parents and students across the board to start saving early for college.
Called $eedMA, the program will begin as a pilot in the 2016-2017 school year in Worchester public schools, with plans to expand the program statewide afterward. Each kindergarten student will receive $50 for their 529 college savings account, with future contributions growing tax-free, no account maintenance fees, and qualified withdrawals exempt from state and federal taxes. And, these college savings can be used in-state, out-of-state and at technical schools.
What sets this program apart from other college savings accounts is the focus on financial literacy for the whole family, says Dan Truong, assistant communications director at the Massachusetts State Treasury. Students and parents participating in the program will receive financial education to help them understand financial concepts and plan for the future, with saving for college being just one part of this.
Other states kicking in free money for 529 college savings plans
Programs like $eedMA have been developed in response to research that shows that low and moderate-income students with at least $1-$499 dedicated to college savings are three times more like to go to college and four times more likely to actually graduate, compared to their peers without college savings. Other states have also begun experimenting with giving each kindergarten student a college savings account. Nevada’s College Kick Start, started in 2013, offers a $50 deposit to a college savings 529 plan for all kindergarten students enrolled in its public schools.
Some states have focused rather on providing college savings from birth, like in Connecticut’s Baby Scholars program started in 2014, where students receive an initial $100 deposit into a 529 college savings plan. However, this system places responsibility on the parent to open the account and receiving the benefit is limited to accounts opened during first year of a child’s life. Started in the same year, Rhode Island’s CollegeBoundbaby works similarly by checking a box on the child’s birth certificate to receive an automatic $100 deposit into a 529 savings plan.
If you’re looking for even more bang for your college savings buck, according to the College Savings Plans Network comparison tool, there are 10 states that offer matching funds on at least one of their 529 college savings plans. These include West Virginia, Utah, Texas, North Dakota, Nevada, Maine, Louisiana, Kansas, Colorado, and Arkansas. The maximum yearly amount matched varies by income level, state, and type of plan, but most plans have a clear emphasis on promoting college savings for lower and middle-income families.
What’s more, increased pushes to lower the fees on these plans are making them more accessible and less costly for savers to access their college savings when it’s time to use them. And recently passed legislation has expanded what counts as a qualified education expense and made 529 plans more responsive to today’s student needs. Nevertheless, there are still many factors to consider when choosing a 529 plan, including additional tax incentives, minimum deposits, among others.
Local college savings programs led the push, face funding challenges
In San Francisco, the city implemented the first-ever publicly-funded universal Kindergarten to College program in 2010. With these accounts, students receive $50 to start their college savings account, opportunities for earning matching funds, and financial education for students. Plus, the program makes it easier for unbanked families to access other financial services. To date, nearly 20,000 students have been enrolled since the program started.
Though, the sustainability of some publicly-funded college savings program has recently been challenged by a decision last year to end the Cuyahoga County College Savings Account Program in Ohio. The program originally gave students $100 to open their college savings plan. Participants of the program were urged to transfer their funds and $100 benefit to the Ohio Tuition Trust Authority’s CollegeAdvantage® Account, a 529 college savings plan.
Individual Development Accounts and Children’s Savings Accounts
Low and moderate-income families may also be able to access Individual Development Accounts (IDA) in their state. These savings vehicles provide matching funds for savers, which can be used for paying for college, buying a house, or starting a business, just to give a few examples. What’s more, some programs even offer up to an eight-to-one match for each dollar saved. IDA programs require financial education training and have participants work closely with a planner to help ensure they are meeting savings goals.
According to the Corporation for Enterprise Development, in 2015, 14 states and D.C. had funding available for IDAs. And, stable funding for these programs has been available for the last three years in Arkansas, Connecticut, D.C., Maine, Minnesota, New Mexico, North Dakota, Ohio, Oregon, Utah, Vermont, and Virginia.
Children’s Savings Accounts (CSAs) are another type of account created to help low-income families save for college and access matching funds. These accounts are specifically designed for children ages zero to 18 and provide financial education, seed funding, and continued incentives for saving. Some are linked to a 529 plan while others are tied to a deposit account.
The push for making college accessible without having to take on massive student debt loads is clear. And in spite of presidential candidate promises for addressing college affordability and student debt, saving for college will continue to be an important part of preparing young people for success in college and later in life. College savings programs like these help to create a culture of financial responsibility and knowledge and build a financial cushion to cover the many expenses that go along with becoming a young adult and heading out on your own.
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