These are the the wise words of Jim Boyle, President of College Parents of America, that always seem to elicit a smile whenever he speaks to a group of parents of younger children. Here are some of Jim’s other comments:

“I guess the simplicity of the line, and the fact that college for their kids is more concept than reality, makes these parents of small kids focus on the “before” part and nod in knowing recognition that if they can save enough money over the next 10 or 12 or 18 years, then in their minds “college will be taken care of” and they can keep a lifestyle as good or better than the one they have right now.

But then, as you well know, reality hits. The assumption of a progressively increasing income may prove wrong, as an employer takes a tumble. The comfort of a backstop from your parents may disappear, as they hold too long to a home they can’t sell, or an unexpected long-term medical crisis ensues, and you end up footing the bill.

That’s where the “during and after” part of paying for college kicks in, and where I surmise that you are probably spending your life right now.

If you are the parent of a current college student, you are probably struggling to pay for college in real time - or “during” - these four, or five or six years when your son or daughter is earnestly taking a full load of undergraduate classes and trying to earn enough money themselves to make a real dent in the bills that seem to just keep on coming from his or her college or university.

And you are learning, of course, that reality hits yet again, and that neither nor child nor you can earn enough money to pay for college in real time, and that borrowing money for college expenses is really the only possible way that you together will be able to make the bills for tuition, room and board, books, fees, travel to and from school and all of the other expenses that hit because you have a child striving to attain a higher education.

So, you as a parent borrow money, and before long you will enter the “after” life and have to start to pay it back, sometimes beginning in 60 days, sometimes at the end of each school year or, in some cases, not until the end of his or undergraduate education. Or in the case of your son or daughter, he or she may borrow money and commit to paying that loan back beginning six months after graduation.

But you may done all this without much of a strategy (and believe me you are not alone), so some of your joy in experiencing your child’s college years is tempered by that nagging feeling that you are just not doing enough to learn options and make smart decisions about paying for college.”

401kid can help families create a tax advantaged Education Savings program so they front load the “before” part of paying for college. By doing so, the college experience becomes more enjoyable and stress-free for all!

see College Parents of America

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The 401Kids Family Savings Act of 2006 was introduced into the US House of Representatives last week to allow parents to open savings accounts for their children at birth in order to pay for college, buy a home, or save for retirement. Up to $2,000 after tax can be contributed to the account per year, with the earnings and withdrawals for those approved purposes also being tax-free. These accounts are similar to Coverdell education savings accounts, but also include the expenses of first-time home purchases and rollovers to Roth IRAs, in addition to education expenses. Representative Clay Shaw (R-FL), who introduced the bill said, “401Kids makes it easier for parents to plan for the future and for our children to achieve the American dream.” More importantly, a provision of this same bill extends the current expiration date from 2010 to 2015 on the tax-free status of 529 College Savings Plans.

The Kansas Legislature also passed a bill last week to extend its state income tax deduction on contributions made to non-Kansas 529 plans for its residents. If the state governor approves this legislation, Kansas will become the second state after Maine to enact this type of 529 Plan tax treatment.

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Maine is the first state that will allow a state income tax deduction for contributions to any 529 College Savings Plan effective in 2007. Currently, any state that already offers this type of tax break only allows it for contributions to the in-state plan. The Maine deduction will also be capped at $250 per beneficiary annually. The Connecticut General Assembly is currently considering legislation to create a state income tax deduction($5,000 for singles/$10,000 jointly) to their 529 plans. Twenty-five states and the District of Columbia currently offer a tax deduction for resident contributions to their state plans. According to Investment News, the more than $65 billion currently invested in 529 College Savings Plans is expected to increase to $300 billion by 2010.

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NEW YORK - California last week kicked off a round of contract negotiations that could reshape the Section 529 college savings plan landscape.

New York-based TIAA-CREF has submitted a bid to renew its contract as program manager for the state’s $1.8 billion 529 college savings plan. It will battle Boston-based Fidelity Investments and the team of Needham, Mass.-based Upromise Investments Inc., and The Vanguard Group Inc of Malvern, Pa., which also submitted bids. A decision on the bid is expected by mid-March.
Bids for upcoming 529 contracts in other populous states such as Michigan and Pennsylvania are also expected to be extremely competitive. But states with smaller populations, such as Idaho and Montana, are drawing far less attention, and they are thinking increasingly about following Wyoming’s lead to fold their plan into ones in other states.

The 529 program manager with the most to lose in the upcoming contract talks is TIAA-CREF, which runs both California’s and Michigan’s 529 plans.

The non-profit organization, best known as a pension and insurance provider for college and university employees, was an early leader in the 529 business. But it has faltered in the past few years, losing contracts in such key states as Colorado and New York, and most recently, in Missouri late last year.

The juggernaut team of Upromise and Vanguard - which beat out TIAA-CREF in Colorado, Missouri and New York - is also expected to bid on the $1.1 billion Michigan 529 contract.

OppenheimerFunds Inc. of New York; Fidelity Investments and Putnam Investments LLC, both of Boston; and American Century Investments of Kansas City, Mo., are also expected to be active bidders for 529 contracts this year, say industry insiders.

While the 529 program manager market is widely expected to be consolidated this year, financial firms clearly are salivating over California’s asset-rich Golden State ScholarShare College Savings Trust program in Sacramento.

“This is as good as it gets; this is a crown jewel,” said Andrea Feirstein, managing member of New York-based AKF Consulting LLC. She is also a strategic adviser to California’s plan, working with the Encino, Calif., office of Portland, Ore.-based Pension Consulting Alliance Inc.

The fact that the California’s plan is well established is another major incentive.

“You can be profitable in Year 2 as opposed to Year 5 or 7 if the program is just starting out,” said Bill Raynor, vice president of college savings plans for OppenheimerFunds and vice chairman of the College Savings Foundation, a Washington-based industry trade group.

In its request for proposals, Ms. Feirstein said, California made it clear that it wants a program manager that has “an attractive set of investment options at a reasonable cost” as well the ability to conduct a “broad outreach” marketing campaign to the state’s diverse population.

The latter requirement may not bode well for TIAA-CREF, which, according to the state, fell way short of its 2004 goal for new accounts, reaching only slightly more than half of the benchmark figure.

Financial firms bidding on California and other states with 529 contracts up for renewal this year shouldn’t underestimate “the importance of pricing,” Ms. Feirstein told an audience of industry executives in a session devoted to RFPs at the College Savings Foundation Forum in Miami this month.

She pointedly referred to “an aggressive model out there that works” - a clear reference to Upromise and Vanguard’s low-cost strategy for administrative fees and passive index funds for direct-sold 529 plans.

That model seems particularly well suited to the Michigan Education Savings Program in Lansing, a direct-sold 529 plan which had 151,000 accounts and $1.15 billion in assets at yearend.

Its contract with TIAA-CREF expires at the end of September, and the state will issue an RFP in April or May, said Robin McMillian, executive director of the Lansing-based Michigan Education Trust.

While TIAA-CREF has given the state no indications about its plans regarding the new contract, she said: “My gut tells me they will [be among the bidders.]”

Pursuing a multimanager strategy is emerging as an alternative to a competitive bid for a solo-program-manager contract, industry insiders said.

Multiple platforms

“Get as many of your funds on as many platforms as possible,” Mr. Raynor told fund executives at the RFP session at the College Savings Foundation Forum.

Many in the industry expect that the number of those state platforms will be reduced in the near future, however.

Wyoming, which had fewer than 1,500 accounts and less than $20 million in assets in its College Achievement Plan in Cheyenne, has already said that it plans to shut down the plan.

It will place its account holders in Colorado’s CollegeInvest 529 College Savings Program in Denver.

Idaho, which just signed a stopgap six-month contract extension with TIAA-CREF through Sept. 30, is considering a similar move, according to Liza Carberry, investment manager for the Idaho State Treasury and chairwoman of IDEAL, the Idaho College Savings 529 program in Boise.

And Montana, which is evaluating bids for a 529 contract that expires at the end of April, is also researching the pros and cons of combining its Montana Family Education Savings Program in Helena with another state or states “the next time around,” said Karen Wing, deputy director and chief financial officer of the program.

Small assets

Regionalization makes sense, Mr. Raynor said, because 529 programs are expensive to run, and those with small asset levels will have difficulty attracting financial firms. Indeed, Ms. Carberry said, TIAA-CREF already informed Idaho that it isn’t interested in renewing its contract for the long term at the current fee level.

Whether the states involved are small or large, change is clearly in the air. “There’s no guarantee you’ll hold on,” Ms. Feirstein warned executives at the Florida conference.

And at the closing general session of that conference, Jackie Williams, executive director of the Columbus-based Ohio Tuition Trust Authority and chairwoman of the Lexington, Ky.-based College Savings Plan Network, a trade association for state 529 officials, said that financial firms that have had five to seven years of experience with a state 529 program “may not be able to meet new expectations. I do think there is a natural evolution occurring right now.”

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If you live in Utah, you are fortunate because paying for college is not as problematic as in other parts of the country. According to the most recent research conducted by various academics in the field, Utah is by far the state with the most affordable college expenses, after taking financial aid into account. On the flipside, families living in the northeast generally pay much greater proportion of their annual income to pay for college expenses, partially due to less government support in that region. For instance, to attend a 4-year private college or university in Massachusetts, it requires over 81% of average annual family income. Maine and New York are not far behind, both registering 78%. Scary numbers, huh? On the side of affordability, Utah and Idaho require 21% and 29%, respectively. How can there be such a disparity? Our view is that marketing and reputation have a lot to do with it. The northeast has always been “known”¿ for first rate colleges and the way schools are run, with billion dollar endowments, education marketing is like an arms race, chasing the “best and brightest”¿ students, while the population of higher education aspiring high school graduates is on a steady increase. Here we find the basic laws of supply and demand at work. Schools, banks and governments all know this, and therefore, have mixed incentives to make college more affordable, depending on the particular state and local government policy.

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