Paying for College: Saving when child is young benefits student, family

  • 3 min to read

Editor's note: This is the final installment of a five-part series on paying for college.

Many families will look at the price tag of a college degree – and the likelihood that cost will only increase over time – and think there’s no way to stretch their budgets that far.

But research shows any amount of money set aside for a child’s higher education will increase his or her chances of earning a degree, and Kokomo School Corp. Superintendent Jeff Hauswald wants to make that a priority in Howard County.

“Research shows one of the leading indicators of whether you’re going to college is not how much money you’ve saved, but whether you’ve saved,” Hauswald said. “When students have begun to save for any sort of post-secondary training, … they’ve begun to tell themselves they’re going to go to college, and that’s the most important thing.”

Hauswald would like to start a county-wide initiative to encourage every family to begin a CollegeChoice 529 Savings Plan for their children at an early age. His goal is inspired by a program piloted in Wabash County in the 2013-14 school year – the Wabash County Promise.

In its first year, the Wabash County Promise increased the percentage of K-3 students with 529 plans from 6.3 percent to more than 72 percent. The Wabash County YMCA took the lead on the promise program, coordinating community partners to provide matching grants. Students are encouraged to recruit “champions,” or friends and family members to contribute to their 529 accounts. Students who raise $25 from their champions by a certain date will have $75 in community funds deposited into their account.

The goal of the Wabash County Promise is to put higher education within reach for more students and make college preparation into a K-12 process, rather than a high school activity. That aligns with the state’s College Go Week initiative that suggests campus visits and other activities to get students at every grade level thinking about college and exploring potential careers.

“It’s putting college and career education at a young age so they don’t only know they should save for college, but they understand what college is,” Hauswald said.

CollegeChoice 529 Savings Plans are named for the Internal Revenue Code that allows for the special investment accounts. States can modify the tax incentives associated with the plans, and in Indiana, taxpayers are eligible for a state income tax credit of 20 percent of their contribution to a 529 account, up to a $1,000 credit each year. Also, the earnings generated from investments through a CollegeChoice 529 account are not taxed, and the money is free from the federal income tax when applied to higher education expenses.

The money saved in a 529 account does not impact the amount of state financial aid for which a student will be eligible, and the savings are counted at 3 to 6 percent of their actual value when factored into a family’s expected contribution for federal financial aid.

Even with the financial benefits of saving for college early in a child’s life, fewer than 3 percent of families nationwide utilize 529 savings plans, according to a report from National Public Radio in January. Seventy percent of the money in those 12.2 million accounts comes from families with an annual income of more than $200,000.

Howard County’s median annual income is $43,590, but Hauswald says that doesn’t mean local families can’t afford to save. It’s possible for every student to pursue higher education, he added, and a 529 savings plan is just one piece in the financial puzzle of paying for college.

“The reason I know it’s possible is it can come through savings, it can come through hard academic work, it can come through scholarships and it can come through military service,” Hauswald said. “I believe that money doesn’t have to be an obstacle for any student.”

President Barack Obama, who has recently touted a proposal to offer two years of free tuition at a community college to every American, also suggested ending the tax breaks associated with CollegeChoice 529 Savings Plans in his State of the Union address. Pushback on that proposal caused him to renounce it, and now Congress is considering a bi-partisan bill to enhance the benefits.

Locally, Hauswald would like to see more community conversations on how to assist families in saving for their children’s education.

“At some point, it can’t just be the school district. We have to have a group of community leaders come together,” he said. “We need to instill in every student an understanding that they can go to college and helping them save money does that.”

Education reporter Lauren Slagter can be reached at 765-454-8587, by email at lauren.slagter@kokomotribune.com or on Twitter @LaurenSlagter.

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