Yellowstone Financial, Inc.

Better Options Than $100 for College

Last month Governor Polis signed a bill that sets aside $100 for Colorado kids born starting in 2020 for higher education costs.  Proponents of the legislation pointed out that children with college savings attend college more often, save more as adults, and achieve more academically.

Will putting $100 aside for college transform them into better students?  Time will tell.  I hope it will motivate families to save more as the $100 alone would pay for a paltry .09 percent of the in-state, four-year cost of attendance at CU Boulder of $115,000.  I guess the message is: families of Colorado get to work on saving the other 99.91 percent!

Fortunately, there are less publicized options for finding help in Colorado for escalating college costs.  The CollegeInvest Matching Grant program matches the contributions of lower to middle income Coloradans to a 529 savings account up to $500 a year for up to five years.  You need to start the program when your child is 12 years old or younger.  For 2018 the adjusted gross income limits for a family of four were $100,400.

In order to qualify, you should contribute at least $500 per child into a CollegeInvest 529 savings plan.  Generally contributions made after June 1st will qualify for matching in the upcoming academic year.  Once you deposit funds into your child’s 529 plan and apply for the match at collegeinvest.org, a separate account will be established for your child with a matching grant of up to $500.  Unfortunately, the grant is put into a low-interest earning Stable Value fund, which does not offer the potential growth needed to keep ahead of college costs.

In order to receive the match, you must choose one of the four Colorado CollegeInvest plans.  My recommendation is the Direct Portfolio plan – the option offered by low-cost stalwart Vanguard.  If you select one of the age-based investment portfolios, then your contribution will be invested mostly in stocks while your child is in elementary school and then shift gradually over to more secure bonds and cash as they get close to high school graduation age.  Investment expenses are 0.34 percent per year, which is much lower than average.

We shouldn’t forget that Colorado is one of a few states that offers effectively an unlimited state income tax deduction on 529 plan contributions.  If you put $10,000 into your child’s plan in 2019, you can reduce your state taxable income by that amount, saving you about $463 on your state taxes.  This tax break is not limited to those with modest incomes.  You can earn seven figures and still qualify.

While it’s encouraging to see this progress, we also need changes to lower the cost of higher education.  High levels of student loans have become a scourge in this country, totaling over $1.5 trillion with an average balance of $35,000 per debtor.  In truth this understates the amount of student loan debt as many families take out home equity lines of credit or refinance their homes to pay for college.

It’s true that Colorado offers less support than average for higher education, relying on tuition for about 70 percent of its higher education revenue.  But even states with relatively low government support such as Indiana have made huge strides to stabilize college costs.  Highly-ranked Purdue University has frozen its tuition and fees for nine years and reduced its room and board costs over the last seven.   Other states have made four-year and community college low cost or in some cases free.  Solutions to help pay for college are welcome, but let’s challenge our legislators and educators to lower the actual cost of higher education.