Maine program brightens college prospects – at birth
Foundation offers $500 grants to all newborns – provided their parents open a college-savings account.
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Alfond's idea sprang from his own $500 gifts to grandchildren and great-grandchildren when they were born, accompanied by a note to their parents encouraging them to start saving. The new program will include information with the accounts' quarterly statements about how families can prepare financially and academically for higher education.Skip to next paragraph
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After this year's pilot at MaineGeneral Health's two hospitals, the $500 grants will be available to all babies born or adopted by Maine families, as long as parents sign up by the first birthday. The Harold Alfond Foundation expects to spend $7 million to $9 million a year, if everyone participates.
If a family adds $50 a month to the account and it grows at a rate of 8 percent, it would be worth $25,000 when the child turns 18, according to the Finance Authority of Maine, which administers the NextGen plans. Without additional deposits, the $500 could grow to $2,000. Tax-free withdrawals can be used for any accredited postsecondary schooling, including vocational training or occasional classes.
The $500 grants are available regardless of income. But Maine's 529 also has a matching-grant program for low- and moderate-income families. Such incentives do tend to result in more savings. About 80 percent of account owners who receive matching grants in Maine continue to make contributions, according to a study by Washington University in St. Louis. Researchers also found in interviews that having a college savings plan encourages students to earn better grades and make more educational plans.
To overcome barriers to saving, a partnership of higher education organizations is promoting 529 accounts and the new Alfond grants. People "are afraid to save for a variety of reasons," says Ms. Vigue. "They think that building assets will impair their ability to get some financial aid awards, so we have to do the outreach to bust that myth. There are [also] families who really feel they don't have disposable income to save."
The Farwells might have been one of those families were it not for the Alfond grant. "To have $500 right handy to [open an account] on our own probably wouldn't have been a possibility," Farwell said. "When you're looking at doing all this paperwork for a college fund, that can be very intimidating to people, so if you have help ... you're definitely more likely to get it started."
Maternity-ward staff pair with benefits specialists to explain the account to new and expectant parents. They helped the Farwells fill out paperwork within 24 hours of Hadley's birth.
"It's a great testimony to Mr. Alfond's generosity – I just wish he could have lived long enough to see the program itself started," says Scott Bullock, CEO of MaineGeneral Health.
Because philanthropy can often be a catalyst, Ms. Mensah of The Aspen Institute says the Alfond program is "an exciting first step." She's working with a bipartisan coalition in Mississippi to push for legislation that would make it the first state to offer tax-advantaged child savings accounts to use for any purpose, such as buying a home or starting a business. The United Kingdom started a similar plan called the Child Trust Fund for children born since September 2002.
"What the UK has done is put a whole generation of kids on track to be smarter savers, savvier about investing, and to be really invested in future opportunities," Mensah says.