Attention, Maine residents! If you’re ready to start a family, a local funder will give you a head start on building a college savings fund for your new child. It’s part of the Harold Alfond College Challenge, an initiative of the Alfond Scholarship Foundation. The late philanthropist Harold Alfond wanted Maine families and their children to pursue education beyond high school.
This is seemingly a local story relevant only to Maine residents, but it's part of three bigger stories that we cover closely: The drive by more funders to orient kids and families toward college early on by taking concrete steps to create an expectation that higher education lies ahead; the focus of many funders on finding new ways to ensure families have the resources for college; and the effort by a growing assets-building movement to help low-income households save and build wealth, with accounts for children a key tool in such work.
In this case, the Alfond College Challenge is leveraging popular Section 529 funds, created in 1996 to make it easier for families to set aside funds for their children’s college educations.
Here’s how the Alfond College Challenge works: Every child born in Maine after Jan. 1, 2013, gets $500 invested in a NextGen College Investing Plan account. NextGen is the Section 529 plan administered by the Finance Authority of Maine, which assists the Alfond Scholarship Fund in administering the program. That $500 will provide a head start on college savings, and parents can contribute to the fund as their child grows. For parents who contribute at least $50 in a calendar year, NextGen will match 50 percent on every dollar contributed up to a maximum of $300 per year.
The funds in the account can be redeemed once the child enrolls in an eligible institution of higher education and requests payment of the grant to that school. The funds can be applied toward tuition, student fees, books and supplies, and some room and board expenses. The funds can be used at any college or university with a federal school code, and students in the program are not limited to schools in Maine.
College savings accounts help establish expectations that children will pursue a higher education. Children with a college savings account are far more likely to enroll in and complete college than students who do not have them.
The Alfond challenge is another example of funders applying resources and grantmaking activities toward asset building, which helps reduce the large and growing wealth gap (see here and here for our previous posts on asset building).
Economists have known for centuries that people respond to incentives. With this asset-building initiative, a funder uses its wealth in such a way as to give families an incentive to participate in a federal and state program that enables them to build assets in a way that carries tax benefits, as well as make some of the best human capital investment there is: the postsecondary education that is all but essential for success in today’s economic climate.
Still, we should note that the dollar amounts in the Alfond College Challenge are relatively small, and other funders have mounted more ambitious efforts to guarantee the costs of college to young people, such as the supporters of Say Yes to Education, which operates in several New York cities.
On the other hand, the Alfond College Challenge covers an entire state and adroitly leverages an existing public savings program with philanthropic dollars. This model should be looked at closely by other funders.