Looking for a gift for a child?
The state treasurer’s office, which administers Arkansas’ 529 college savings plans, is offering gift cards for family and friends to start or contribute to a child’s college savings account or help college students pay down student-loan debt. Arkansas is the fourth state to offer the Gift of College gift cards in Toys R Us and Babies R Us stores.
The rollout comes as the cost to attend college has increased and as national student-loan debt has reached about $1.4 trillion. The average annual cost of attending college in Arkansas was nearly $6,500 below the national average of $28,037 in 2015-16, while the state’s graduates that same period had an average debt of $26,859, just $1,840 below the national average, according to The Institute for College Access and Success, a California-based nonprofit that focuses on college affordability.
“With Arkansas, we know that we trail the nation in a lot of areas” including the percentage of Arkansans who hold high-demand certificates and degrees, said Treasurer Dennis Milligan. “What better way to be able to help our students — which obviously money is a deciding factor — to have advanced education.”
An educated workforce can help attract businesses to the state, which can create high-wage jobs, fill future workforce demands and create a better quality of life overall, state leaders have said.
The idea behind 529 plans is to allow anyone — regardless of their income level — to save for a child’s college education, whether it’s at a local vocational school or a private out-of-state university. The tax-advantaged savings plans work similar to Roth IRA retirement accounts, in which people contribute post-tax earnings to investment accounts that grow tax-free.
Parents, relatives or even friends can start an Arkansas 529 account in a child’s name with as little as $25.
“And so from there, you can determine exactly where your comfort levels are in terms of funding the account: You have a payroll deduction option; you have an AIP, which is an automatic investment plan which means you set that up for auto-draft off of your checking account; you can also self-fund which means you can send in a check at your comfort,” said Emma Willis, the director of Arkansas’ 529 programs and financial literacy.
“Just whenever you get ready to do it, that means there’s no minimum except for that $25 to initiate that account, and from there you determine how you can afford to put money into this account,” Willis said.
Arkansas’ 529 plans now number more than 40,000. Some are opened directly– targeted at the low-to-moderate income households and averaging about $14,000, and others are adviser-opened– targeted at those with higher incomes and averaging about $40,000, she said. Since Milligan took office, the account balances have grown by some $130 million, the treasurer’s office said.
Nationwide, there is about $300 billion saved in about 13 million 529 accounts, said Wayne Weber, CEO and founder of GiftofCollege.com.
Just knowing about savings for college can open up so many doors for children, Willis said. The savings accounts can also raise parents’ expectations for their children, as well as children’s own expectations for their futures, according to the Prosperity Now, a Washington, D.C.-based nonprofit that seeks to ensure Americans have a “clear path” to financial stability, wealth and prosperity.
The accounts are also linked to improved early-childhood development and a higher likelihood of attending and graduating from college, the nonprofit said.
“Now, what’s really genius about 529s is that we have gifting platforms that are available so that everybody can contribute to your child’s higher education goals,” Willis said.
There’s an Arkansas program called UGift that is similar to crowdfunding, in which account-holders can generate a code to share with friends and family, and another program called UPromise Rewards, in which preferred credit cards can be linked to accounts and generate up to 8 percent back, depending on the current promotion.
More than $1.3 million has been donated to 529 accounts since the inception of UPromise Rewards, according to the treasurer’s office. Under UGift, the direct-sold accounts have more than $2.5 million from 4,156 gifts, while the adviser-sold accounts have about $674,000 from 641 gifts, data show.
And now, the state agency is introducing the new gifting platform: gift cards.
California was the first state to carry out Gift of College cards in October 2016, and since then Virginia and Connecticut have used the platform as well, Weber said. The Gift of College website was created to facilitate the process of adding to an existing 529 plan or creating a new one and to raise awareness of the plans.
Retailers, through the gift cards, were one way to help bring awareness to the plans, Weber said.
“This year, in 2017, we’re already 1,444 percent when it comes to gift card dollars gifted ahead of what we did 2016,” he said, adding that they are “well into the millions of dollars” in total gift sales. “We’re really excited about the success.”
Julio Martinez, the executive director of ScholarShare Investment Board, which oversees California’s 529 plans, said California Treasurer John Chiang had charged the board with coming up with innovative and creative ways to get families to participate at greater rates.
“Given the success of gift cards in other spaces, we know that they’ve become kind of — at first, they were new and strange — but now, looking back 10 to 15 years later, most families look to the gift card option,” he said, adding the gift card is just one of many tools. “Overall, it has contributed to our overall gifting platform where in the span of one year, all of our tools in our gifting platform increased by nearly 100 percent.”
He added that the gift card balances are hovering around $400.
Weber, the CEO of the Gift of College website, said about 70 percent of the cards are going toward 529 plans, while the remainder are for student-loan accounts. Those percentages could even out, he said, but he hoped they wouldn’t.
“I want more people saving than paying down debt,” he said.
In Arkansas, Milligan said he is hopeful the gift cards will lead to continued, gradual growth of the 529 plans.
“You know what, that drop in the bucket, if it’s consistent, that bucket will fill up with water,” he said. “And there’s one day when you can dip your cup in there, and you can take a big drink and not even see a difference in the level. So it’s a long-term thing, but it’s still a great opportunity for all Arkansans to be able to access education.”
Metro on 11/25/2017