COLLEGE SAVING PLAN CATCHES ON
Article in the News Journal
By Stephen Sobek
January 18, 2001
When the time comes, Lou Rafetto does not want to tell his daughter she cannot go to the college she wants because it is too expensive.
Nearly two years ago, the Centreville resident began saving under a state tax-deferred investment plan for his 7-year-old daughter's college expenses.
"My parents were able to take out loans to put me through college," Rafetto said. "I don't think there's anything more valuable that you could give a child."
More parents are thinking like Rafetto. The Delaware College Investment Plan, created in 1998, has grown from 824 accounts and $3.9 million in assets its first year to more than 5,100 accounts and assets of more than $31.2 million.
Attracting investors away from alternative savings plans is the plan's state tax benefits. When the money is withdrawn to pay for education, it is taxed at the student's rate, not the parents'.
"When this came along, it seemed to me to be the perfect vehicle to put the money into," said Rafetto, who also is saving for his 5-year-old son.
Some parents could save about half the tax bill that they would normally pay on similar investments.
For example, if a parent's tax rate is 30 percent and the growth of the plan is $20,000 over the time of investment, it could mean paying $3,000 in taxes instead of $6,000 if a child is working and in the lowest tax bracket of 15 percent, said state Treasurer Jack A. Markell, who oversees the program.
Markell said he does not have much of a budget for promoting the savings plan. He attributes its growth to word of mouth and talks he has given to parent-teacher associations and civic groups.
Brochures also are sent home with elementary students. And, Fidelity Investments, which manages the program for the treasurer's office, pays for some advertising.
"Our focus is primarily on public awareness … so that parents who want their children to attend college can start thinking about it early," Markell said. "This is how I'm planning for my own children's education."
The growth in state-sponsored college investment programs is not just in Delaware.
Chris Hunter, a program manager with National Association of State Treasurers in Lexington, Ky., said that 33 states have a savings plan similar to Delaware's.
Another 20 states have pre-paid tuition programs where investors contribute a lump sum or monthly payments to get locked in at today's tuition rates, he said.
More than a dozen states have both types of plans and nationwide there are more than 1.3 million accounts totaling more than $7.5 billion.
Hunter said that is good news for the parents doing the savings because the availability of grants and scholarships is declining and the number of parents borrowing to pay for college is rising.
"If you can save for college, it's better than incurring debt on the backside," Hunter said.
According to the U.S. Department of Education, the average public college in 1998-1999 cost more than $8,000 including room and board. The average private school cost more than $20,000.
According to the College Board, which administers the SAT, those costs rose 34 percent between 1985 and 1995 and are expected to keep going up.
"I think people get sticker shock" over the costs associated with college, said Marilyn Quinn, executive director of the Delaware Higher Education Commission. "What that does is send a lot of families into paralysis."
But college is attainable for almost anyone, especially with the help of such specialized investment programs, Quinn said.
"We would hope to see more people attending college and relying less on … loans," she said.
Rafetto, who is saving for his two young children, said that even though the last year has not seen as much growth in his money because of a volatile stock market, he has confidence the program will work for him in the long run.
He also likes the program's flexibility. For instance, it allows him to transfer the money to the other child if one decides not to go to college. The money also can be used to pay for schools outside of Delaware.
"It's so open-ended," Rafetto said.
