The Harold Alfond College Challenge, announced Tuesday, will give Maine infants $500 in a tax-advantaged college savings account. The program will start next month at two hospitals in central Maine and expand statewide by Jan. 1, 2009.
The plan's sponsors say they hope that establishing an account will be an incentive for parents to save, and remove college costs as a barrier to higher education for thousands of Mainers.
"When the parent leaves the hospital, they have not just $500 from Mr. Alfond, they also have that account open," said Greg Powell, chairman of the board of the Harold Alfond Foundation, which is covering the program's annual cost of more than $7 million a year. "Their vehicle is already in place."
Alfond, who founded Dexter Shoe Co. and sold it for $420 million 14 years ago, died last month at age 93. Powell said he and Alfond had been working on the plan -- apparently the first in the nation to provide college savings grants statewide -- in the months leading up to the philanthropist's death.
Powell said that when parents sign up, the Alfond money will be deposited in a NextGen account in each child's name. The accounts are managed by the Finance Authority of Maine, which will also promote the program and take care of enrolling parents in the accounts, known as 529s after the section of the tax code that established them.
Income from the savings is tax-free as long as the money stays in the account, and withdrawals are tax-free if they are used for higher education.
Powell said the money is intended as "a hook" to get parents to set up the accounts. The program will start Jan. 1 at MaineGeneral Health hospitals in Augusta and Waterville, where the hospital's staff will be trained so they can tell parents about the program and help them sign up.
Powell said information on the Alfond gift and the 529 accounts will also be distributed in prenatal classes at the hospitals, so saving for college will be part of the preparation for parents-to- be, along with learning about changing diapers and nursing.
The program will be extended statewide by Jan. 1, 2009, or sooner if the pilot project at MaineGeneral Health goes smoothly, Powell said.
He said others are encouraged to donate money to help support the program, but Alfond's foundation is expected to "easily handle a $7 million to $9 million grant each year to support this. Nothing would make us happier than ... full participation."
About 1,400 babies are born at MaineGeneral each year, meaning the cost for the first year will be more than $700,000. About 14,000 babies are born in Maine each year, boosting the cost to more than $7 million when the program goes statewide.
If left untouched, the $500 would grow to about $2,000 by the time a child is 18, based on 8 percent annual interest. If matched by $50 monthly family contributions and the same interest rate, the account would be worth $25,000 by the time the child reaches age 18, according to information provided by the Alfond Scholarship Foundation.
In addition to the money and the savings accounts, the program will also try to raise Mainers' college aspirations and readiness, Powell said. Quarterly financial statements will include information on how to best position a child for college, he said, with the material tailored to the age of the child.
The idea is for parents to "take that 18 years to help prepare their child for higher education -- financially, academically and practically," he said.
Not enough parents are tackling the financial part, said Howard Gartenhaus, an expert on college savings plans and a financial adviser in Maryland.
The 529 accounts, he said, "have been an area of pretty dramatic growth, but it's got a long way to go."
Gartenhaus noted the tax advantages of the account and said colleges...
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