There does not appear to be any indication that college tuition and living expenses will decrease in the immediate future for students. For this reason, it’s become increasingly important for families to save early and often for their children’s college education. Massachusetts has made it easier for its residents to save for college. Starting January 1, 2020, the Massachusetts State Treasurer’s Office will provide for every child born or adopted who is a Massachusetts resident a $50 seed deposit to families who open a U.Fund 529 College Investing Plan by the child’s first birthday, or within the first year after adoption. The program is called the BabySteps Savings Plan.
Edmit recently sat down with Julie Shields-Rutyna, Director of College Planning at the Massachusetts Educational Financing Authority (MEFA), and Yiming Shuang, Chief Operating Officer at Inversant to learn more about the program.
Director of College Planning, MEFA
Chief Operating Officer, Inversant
Edmit: When and why was the BabySteps Savings Plan created?
Shuang: BabySteps is a seeded college savings account program that is an expansion of the SeedMA initiative started in 2016 by our State Treasurer Deborah Goldberg in collaboration with the Office of Economic Empowerment and MEFA. I represent Inversant–a nonprofit organization whose mission is to ensure that through parental engagement every low-to-moderate income family has the resources and understanding they need to achieve their goals for higher education. BabySteps began when the Treasurer began her campaign. The Treasurer saw the benefit of college savings account programs for individual families as well as the long-term economic impact, and made it her mission to establish a statewide program in Massachusetts.
When families shift from debt dependence to asset-empowered education, a college savings plan helps expand educational and economic opportunity for their children. This program would not exist without strong partnerships. BabySteps started as a grassroots initiative. It was established from a number of partnerships, which included elementary schools, community-based organizations, and faith-based organizations just to name a few. Grassroots engagement helps you build trust and connection with families and the overall community. The partnerships are what made the initial pilot program a success.
Edmit: Who is eligible to participate in the program and how do parents enroll?
Shields-Rutyna: Babies born to Massachusetts families who are less than one year old and adopted children no later than the first anniversary of the adoption are eligible to receive the $50 seed deposit when they open a MEFA U.Fund 529 College Investing Plan account. Parents who want to start a savings account through BabySteps will be asked to indicate their interest on the Department of Public Health Parent Worksheet at the time of birth. The Massachusetts State Treasurer’s Office in conjunction with MEFA will then send the family information about the U.Fund enrollment process and follow up with families on next steps. Families will then go to fidelity.com/ufund to open the account. After opening the account, families can begin contributing to the fund and will receive information from the State Treasurer’s Office and MEFA about growing their children’s accounts.
Edmit: What is a 529 college savings plan?
Shields-Rutyna: 529 college savings accounts are flexible, tax-advantaged, investment accounts specifically designed to help families save for expenses at colleges and universities across the U.S., including community colleges and vocational schools. In addition to the $50 deposit from the State Treasurer’s Office, other benefits of the program include a MA tax deduction for contributions into a 529 account and a financial education program. Families who open 529 accounts can still participate in other public benefits programs.
Edmit: How have schools, parents, and the community at large responded to the program?
Shuang: The response has been positive. What we learned since creating the program is that we need continuous grassroots engagement meaning that we need to ask questions of community leaders, actively listen to what their needs are, receive feedback, and continue the dialogue. When initially rolling out the pilot program, we found that the most effective form of outreach occurred when trusted sources within the community reached out to families instead of when the information came directly from us. Trusted sources included church leaders, state representatives, advocate groups, business leaders, and the local YMCA for example. In the beginning, we realized that Massachusetts’ decentralized school system would create barriers to reaching every family in the state. We planned to lead a robust grassroots effort in partnership with the Massachusetts Department of Public Health and other entities within the state health and social services systems, allowing us to engage families from the moment children are born or adopted through a variety of trusted touchpoints.
Edmit: Are there other states that offer similar programs to their residents?
Shuang: College savings account programs are considered a best practice throughout the country and of the four statewide programs, three are offered at birth in Maine, Rhode Island, and Connecticut. The city of San Francisco has a similar program called Kindergarten to College (K2C).
Edmit: Why do you think college savings programs have become increasingly popular?
Shields-Rutyna: The cost of a college education is significant for most families. College savings programs provide families with long-term investment opportunities and positively influence many dimensions of a child’s life. These areas include academic performance, social-emotional development, educational aspirations, asset accumulation, college attendance and graduation, and post-college financial fitness. Research shows that low and moderate-income children with less than $500 in college savings are three times more likely to attend college and four times more likely to graduate than students with no college savings (see footnote #1). Other studies have shown that children with college savings are 31% more likely to expect to go to college than children without college savings (see footnote #2).
Edmit: How will BabySteps continue to be funded?
Shuang: The program does not require any tax dollars in order to continue to operate. The program will be funded through the Economic Empowerment Trust Fund, and public-private partnerships will fund the seed $50 deposit. The founding sponsor of the program is the Hildreth Stewart Charitable Foundation, which donated $300,000 to the Economic Empowerment Trust Fund for BabySteps. The Treasurer’s Office shows that there is an estimated 70,000 births in Massachusetts every year. About $3.5 million would be required if 70,000 children were signed up, but we don’t know how many families will actually take advantage of this program by opening a 529 plan in the first year.
Edmit: What kind of content and resources can families expect to receive from the financial education curriculum offered through BabySteps?
Shields-Rutyna: We are still working out some of the details regarding the curriculum. MEFA has a financial education program that it shares with families based on age and grade. We cover a number of subjects including saving, budgeting, admissions and financial aid, and paying for college. Different subjects are covered as each student progresses through his/her education. We offer students the tools and resources they need at various stages of their lives. As previously mentioned, the success of BabySteps is its partnerships. Inversant, one of our partners, has a financial literacy program so that serves as an additional resource to families. The Treasurer’s Office has also worked with the Massachusetts Department of Education to provide resources to families.
Edmit: Families must choose an investment strategy during the enrollment process. For some low-income, first-generation families and those with little knowledge of financial markets this can be a bit intimidating. What resources are available to help guide families to choose an investment strategy that is a good fit for them?
Shields-Rutyna: Fidelity Investments has certified financial professionals that can advise families on what is the best investment strategy for them based on a number of factors. There are several local branches available throughout the state if families wish to meet in person. Families can also connect with a representative via live chat, phone, or email by visiting the Fidelity Investments website. Many families choose an age-based investment strategy that moves to investments that are more conservative as the child gets closer to college age. Families have the option to change their investment strategy up to twice a year.
Edmit: How can families make regular contributions and eventually withdraw the funds once the child has reached college age?
Shields-Rutyna: Families can view the performance of their investment, see account details, and make regular contributions online. They can also opt to receive paper statements through postal mail. Family members, friends, and organizations can also contribute to the child’s fund online. The account owner (typically the parent) can withdraw the funds online. The funds must be used for qualified higher education expenses, which cover tuition, fees, books, supplies, and room and board. The category of “qualified higher education expenses” is broadening more and more, which has provided families with more flexibility when it comes to covering specific costs. Families are advised that non-qualified distributions are subject to federal income tax at the recipient’s rate as well as a 10% federal penalty.
Edmit: What are some valuable lessons learned through creating, testing, and implementing the program?
Shuang: It is important to build trust within the community when launching a program like this. Community engagement is vital. We’ve also found that a language barrier can sometimes be an obstacle for some families whose first language is not English. Therefore, it’s important that our partners within the community serve as advocates and resources to families. We want to lower barriers and increase accessibility. We will continue to educate families about how a small investment in their child’s education can have significant long-term gains during college and beyond.
1 Elliott, W., Song, H-a, & Nam, I. (2013). Small-dollar accounts, children’s college outcomes, and wilt. Children and Youth Services Review, 35(3), 535-547.2 Elliott, W. (2009). Children’s college aspirations and expectations: The potential role of college development accounts (CDAs). Children and Youth Services Review, 31(2), 274-283.