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.
