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Richard Calvario

Independent Colleges and TIAA-CREF Offer Unique College Savings Plan

By Joan Baum, Ph.D.

For sure, customers who can’t remember what TIAA CREF stands for—and most can’t (for the record it’s: Teacher Insurance Annuity Association / College Retirement Equities Fund) but who regularly receive reports from this 85-year old, 350 billion-dollar financial services company centered on providing pension retirement benefits, news about a unique TIAA tuition savings plan, introduced a couple of years ago, will probably come as a surprise. Called Independent 529 (the number refers to a section of the IRS code that allows individuals to pay for higher education free of federal and, in most cases, state income taxes—that’s free, as opposed to tax deferred, as long as the money goes toward its stated educational purpose—Independent 529, a flexible, national program, allows individuals to prepay tuition for private college, with the same federal tax advantages as general 529s, but with a number of striking differences: 529s are state sponsored; Independent 529 is by the private colleges themselves. Though National Product Consultant on Education Savings for TIAA-CREF Richard Calvario’s eyes glow talking up the advantages of Independent 529, neither he nor Peg Ogden, a longtime supporter of leadership programs in higher education and a former CUNY administrator, can explain why the Plan is not better known, since more than 250 private colleges nation wide now participate, and the list is growing rapidly.

It was TIAA’s commitment to higher education and tested reputation as one of the “first players” in handling 529s, Rich Calvario believes, that drew the private college consortium to approach with a plan that would allow families to buy tuition for their children or grandchildren at less than market prices today and redeem certificates up to 30 years later. The Plan was launched on September 2003. Participating colleges, among them Princeton, MIT, Stanford, Notre Dame, U. of Chicago (a full list can be found online) also offer a slight discount (at least a half percent per year), which over time adds up. Given the current rate of tuition inflation—6-7 percent annually—the potential savings would appear to be sizable. For example, says Rich, if in 2005, college X’s tuition is $25,000 a year, chances are that in ten years, it could be $50,000, but for an 8-year old, who becomes a beneficiary today, the price would lock in now at a little less than $25,000 a year (because of the discount). Peg notes that the plan would thus make it possible for private colleges to control runaway tuition costs, improve their public policy image, be guaranteed tuition up front and thus, if they wanted to, accept more students, a possible attraction for the smaller privates. As a result, Rich adds, students might be less dependent on financial aid and loans. Peg nods in agreement. Their enthusiasm for Independent 529 draws them into unrehearsed exchange, he, an education savings point person for TIAA-CREF, she a non-partisan outside observer. Together, they both point out that Independent 529s, unlike general 529 plans, which rise or fall with the market, shift the risk from the individual to the college. They also note other advantages: contributions are considered gifts and are not subject to estate tax; beneficiaries can be changed without penalty to a relative and refunds can be obtained if the child doesn’t get accepted to and enroll in one of the participating colleges; starting contributions can be as little as $25 a month (with a requirement of a minimum of $500 within two years); those who take out a plan don’t pick a college now—certificates can be used at any currently participating institution, as well as at any that join in the future.

A young industry and limited marketing may explain the public’s lack of knowledge about or interest in Independent 529s, even 529s in general. According to Financial Research Corp. statistics show that only 3.7 million 529 accounts now exist out of an estimated 72 million possible beneficiaries under the age of 18. But an irony suggests itself: if the world of 529s, filled with different state plans, confusing investment options and varying fees, occasional media reports of dubious investment practices and rumors of future legislation that may change the rules proves daunting—and it does—an additional benefit of Independent 529s may turn out to be their comparative simplicity. Of course, prospective investors should educate themselves by visiting websites such as www.independent529plan.org and www.savingforcollege.com and reading blogs that try to clarify the two roads that diverge in this college savings plan thicket, especially if the one less traveled by proves more compelling.#

TIAA was brought to our attention by Peg Ogden, a volunteer consultant on benefits—a retiree from City University where she was a College Personnel Director for over 25 years and previously the first female store manager of a major retail store in the East. Peg is active with Brown University where she received her B.A. and her family established the Stephen A. Ogden, Jr. Memorial Lecture Series in 1965 on international relations in memory of her brother. Peg also established a chaplaincy fund at Brown and has done alumnae interviewing for the past 35 years. Thanks again, Peg, for bringing the Independent 529 to our attention so we can let our readers know about this great opportunity.



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