The Aspiring Scholars Matching Grant Program showed a successful first year helping Arkansans save for college, according to a report released today by Southern Good Faith Funds Public Policy program.
Aspiring Scholars was authorized by the Arkansas Legislature under Act 597 of 2007. The program offers an incentive, in the form of a savings match, for low- and moderate-income Arkansas families to save for their childrens’ college education using the GIFT College Investment Plan. The GIFT Plan is Arkansas 529 college savings plan.
Every state has a 529 plan, which is named after the Internal Revenue Service code number which authorizes such plans. The 529 plan accounts allow for federal tax-deferred growth as well as federal and state tax-free qualified withdrawals of savings for college expenses. Also, there is an Arkansas state income tax deduction for savings in a GIFT Plan account up to $5,000 for individuals and up to $10,000 for a married couple.
Recent national headlines document how rising college costs threaten to price many families out of higher education. Aspiring Scholars, which requires families to contribute some of their own money to receive a state match, represents an innovative approach to helping families afford college. Arkansas is one of just 12 states that currently offer a savings match grant as part of their 529 plans. The other states are Colorado, Indiana, Kansas, Louisiana, Maine, Michigan, Minnesota, North Dakota, Rhode Island, Utah, and Vermont.
Aspiring Scholars was initiated as a two-year pilot with $250,000 in funding for calendar years 2007 and 2008. These funds came from the management fees collected by the state from all GIFT Plan accounts.
First-year demand for Aspiring Scholars was strong. A total of $241,740 in state matching grant funds were dispersed to 469 participants in both 2008 grants and retroactive 2007 grants. In 2008, $198,585 was awarded for matching grants, and $43,155 was awarded in 2007 for eligible participants already enrolled in the GIFT Plan that year.
Savings match rates are determined by participant household income. For households with annual adjusted gross income (income after allowable tax deductions) of $30,000 or less, the match rate is $2 for each $1 contributed. For households with annual adjusted gross income of $30,001 to $60,000, the match rate is $1 for each $1 contributed. The maximum annual matching grant for all participating households is $500 per child for five years.
The first year of Aspiring Scholars was a resounding success and a testament to the fact that lower- and moderate-income families, given the right kinds of incentives, can and will save for college, said Mike Leach, Director of SGFFs Public Policy program. The strong demand for this program, and the opportunity it offers to Arkansans willing to do their part to save for their childrens higher education, make a compelling case for making the program a permanent part of the states financial aid program infrastructure.
Leach noted that the current source of funding for Aspiring Scholars cannot sustain the program indefinitely, particularly if the program continues to grow at the current pace. This year 576 participants are enrolled in the program, a 22 percent increase from 2008. The Section 529 Plan Review Committee, which oversees Aspiring Scholars, is committed to securing additional funding to continue the program, and is examining all possible options including foundation and corporate sponsorships, Leach added. Entergy Arkansas has helped support marketing activities for the program.
Significant findings outlined in SGFFs report include the following:
* Increased low- and moderate-income family participation in the GIFT Plan. Of the 471 participants enrolled in Aspiring Scholars the first year, 359 (76 percent) were new GIFT Plan participants, while the remaining 112 participants were already enrolled in the GIFT Plan. If the 112 participants who already were enrolled in the GIFT Plan the previous year represented all GIFT Plan accounts eligible for Aspiring Scholars, which is a reasonable assumption, there was more than a 300 percent increase in GIFT Plan participation among low- and moderate- income families in 2008 due to Aspiring Scholars. Only two of the 471 participants originally enrolled in Aspiring Scholars dropped out of the program.
* Families of different income levels were able to benefit from Aspiring Scholars. The chart at the bottom right of page 2 of the report shows a detailed income distribution. There were as many participants with household incomes of $20,001 to $30,000 as there were participants with household incomes of $30,001 to $40,000 and of $40,001 to $50,000. Nearly the same numbers of participants were enrolled in Aspiring Scholars with household incomes from $10,001 to $20,000 and $50,001 to $60,000. Overall, 56 percent of accounts received a $1 to $1 match rate, while 44 percent received the $2 to $1 match rate.
* A significant number of account holders increased their savings rate between 2007 and 2008. This is an important finding because it shows the program not only promotes savings, but higher rates of savings, which was another goal of the program. Among the lowest-income families (those receiving the $2 to $1 match rate), 10 percent increased their savings rates, while another 84 percent maintained their savings rates. Among higher-income families (those receiving the $1 to $1 match), 30 percent increased their savings rates, while 58 percent maintained their savings rates. These are particularly encouraging findings considering the recessions impact on working families beginning in mid- to late-2008.
Despite the long-term funding uncertainty, the demand for and value of Aspiring Scholars is certain, Leach said. In just one year, this program has had an impact by promoting college savings for hundreds of Arkansas children from low- and moderate-income families. Aspiring Scholars has proven to be a very successful pilot program, even during tough economic times for working families, and the promise it has shown indicates the need for it to be continued indefinitely.
Click here for more information about the Aspiring Scholars Matching Grant Program.
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