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Pennsylvania has become the latest state to automatically give a forward-looking birthday present to babies born in Pennsylvania or adopted by Pennsylvania residents after Dec. 31.
It’s a present that the newborn or his or her parents may be grateful for down the road when it comes time to to pay for the child’s post-secondary education, which is increasingly becoming a requirement in the 21st century workforce.
The Keystone Scholars program signed into law by Gov. Tom Wolf on Friday creates a college savings account and deposits $100 into the account for the 140,000 babies born annually in Pennsylvania as well as those adopted by state residents.
In establishing this program, Pennsylvania becomes the largest state in the nation to implement an automatic universal child savings account program.
Programs like this have proven to have an impact in other cities and states that implemented them, said Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.
“I think it’s a great idea,” he said. “It’s setting up an expectation that the child is going to go to college.”
Research shows children who have even small savings accounts for college are seven times more likely to attend and graduate from college than those who have no savings accounts, University of Kansas associate professor William Elliott told Pew Charitable Trusts. Elliott has written extensively on children’s savings account.
The seed money deposited into the accounts will not come out of tax dollars. Rather, state Treasurer Joe Torsella, who championed the idea, said it will be funded from existing surplus investment earnings in the state’s guaranteed college savings program, which is currently over 117 percent funded, as well as from philanthropic donations.
The funds remain under the sole custody of the Pennsylvania Treasury until they are used for a qualified higher education expense. If not claimed by the child’s first birthday or used by age 29, the funds will return to Treasury.
“Keystone Scholars sent a powerful message to Pennsylvania’s future workforce,” Torsella said. “This $100 investment shows that we believe in the children of the commonwealth and see a bright future for every one of them.”
The money placed in the college savings accounts along with any additional money deposited in the PA 529 college savings account will grow through investment. The money can be used at an approved trade school, vocational program, community college and universities in and outside of Pennsylvania.
Sen. Vince Hughes, D-Philadelphia, along with Republicans Sen. John Gordner of Columbia County and Rep. Duane Milne of Chester County, took the lead in offering legislation to create this program that Kantrowitz said resembles ones already in place in Maine, Rhode Island and North Dakota.
“I supported the Keystone Scholars program from the beginning because I believe in the power of education and the opportunities it provides,” Hughes said. “The $100 investment into Pennsylvania students helps create the mindset that higher education can be a reality while also encouraging families to plan for the future while a child is still young.”
In February, Torsella launched a demonstration project of this college savings program for children born this year or next in six pre-selected counties: Delaware, Elk, Luzerne Indiana, Mifflin and Westmoreland. The pilot was funded using earnings from the Pennsylvania Higher Education Assistance Agency’s loan servicing business and three private foundations.
Torsella traveled to each of the six counties within the demonstration project to meet with local partners and families who registered to participate in the program.
“What the treasurer consistently heard from parents of newborns is that the Keystone Scholars grant gave them the nudge to start thinking about their child’s future education in a new and better way,” said Treasury spokesman Heidi Havens. “By starting to save sooner, even $25 a month, parents will have saved $10,000, and that’s an impactful amount for so many.”