ILLINOIS STATE TREASURER SAVES FAMILIES MONEY IN COLLEGE SAVINGS PLANS
Illinois State Treasurer Michael Frerichs (pictured) said changes to Illinois’ two college savings plans have resulted in $100 million in savings for families who have Bright Start and Bright Directions. Photo courtesy of Michael W. Frerichs/Illinois State Treasurer
Illinois State Treasurer’s Office has been able to save Illinois families $100 million in Bright Directions and Bright Start College Savings Plans since 2015. It also has been able to more than double the assets in accounts for students to go to college.
Bright Directions and Bright Start are both 529 tax-advantage plans. According to the U.S. Securities and Exchange Commission, a 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
Bright Start is a college savings plan that individuals can open, without assistance from a financial advisor, while Bright Directions is a college savings plan that is opened through a financial advisor. With both plans, the funds can be used at colleges, universities, trade, technical schools throughout the country, and overseas. And, the tax-free investment means it can be used for tuition, housing and books.
Illinois State Treasurer Michael Frerichs said one of the reasons for the savings is because the office has been able to reduce investment and management fees, which makes the fees some of the lowest in the country.
“It means more young people are going to be likely to go to college and more young people are going to graduate with less debt,” he said.
Frerichs said the office also changed its program manager and changed the investment options. He said as a result Morningstar, an independent research and investment firm, has rated the plans among the best in the country. He said Morningstar rates Bright Start gold-rated, which is the highest rating, which makes it one of the top three in the country.
“My goal is to have the best programs in the country,” he said. “I also wanted to make sure the more money families were saving went toward the kids’ college education.”
Frerichs said the office negotiated a 50 percent cut in management fees, and a 47 percent cut in investment fees. He said the office also wanted to increase the number of accounts. There are more than 700,000 accounts.
“Research by professors at Washington University show that if a young person knows they have a college savings account in their name, they are three times more likely to go to college. If they’re the first generation in their family and they know they have a college savings account, they are seven times more likely to go to college,” he said.
Frerichs said that a college education is expensive and many students are graduating with massive debt. He said if families save in advance, the students will not graduate with that debt. And, if families save early, it gives them time to grow the funds through investments.
“If you don’t, you’re going to be paying that interest on that debt for years to come,” he said.
Frerichs said it is really about setting the expectations for young people. He said the message that parents are sending by investing in a 529 college savings plan is the message that is being set.
“When you set expectations high for people, they don’t always reach them, but they are reaching toward them. So, when you tell your children, I set up a college savings account for them, what they hear is you are smart, you are college material, I believe in you and I’m investing in you,” he said. “When kids hear that, when they believe that, they work harder in high school. If they can see themselves going to college, they’re more likely to go.”
For more information about Bright Start, visit www.brightstart.com.
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