🔒Use Maine grant money for college costs

Maine's need for an educated work force has been recognized repeatedly by industry and policy makers for years as a means to drive the state's economy forward and to provide opportunities for young people to continue to live and work here. But paying for college costs continues to be a conundrum for many parents who watch tuitions rise at a rate that far outpaces their income growth. To help meet that need, the NextGen College Investing Plan was initiated in Maine in 1999 and now is the seventh-largest Section 529 plan in the country, with over $7 billion in assets.

NextGen is a college savings plan administered by the Finance Authority of Maine that offers tax advantages to families so they can invest in future qualified higher education expenses.

Here are five tips to help you plan for your child's future college expenses:

1. Don’t leave money on the table

Maine residents may be eligible for up to $1,550 in educational grants, regardless of income. Grants are awarded to a NextGen account, which can be created online by following directions at FAMEmaine.com/NextGen, or by talking to a Maine financial adviser. Account holders should familiarize themselves with term and conditions of the grants to see what restrictions and conditions might apply. Here are four to consider:

• Initial Matching Grant: Eligible Maine accounts opened with at least $25 in the direct sold series, or $50 in the adviser sold series, may receive a one-time $200 Initial Matching Grant. This grant is not available for babies who are eligible for the Harold Alfond College Challenge Grant.

• Harold Alfond College Challenge Grant: A one-time $500 grant available to all Maine resident babies for whom a NextGen account is opened by the baby's first birthday.

• The NextStep Matching Grant: Provides a 50% match on contributions, up to $100 per year, with a lifetime maximum amount of $1,000.

• A $50 Automated Funding Grant: Available for eligible Maine accounts that make at least six consecutive contributions through an automated funding option such as payroll deduction.

2. Replace debt with savings

Money that can be put aside now might help replace future college debt. Planning puts parents in a better position to pay for higher education costs.

3. Redirect daycare dollars

If parents are spending on daycare, they should consider redirecting all or a portion of those dollars to a NextGen account when a child enters kindergarten.

4. Embrace habitual investing

Automatically investing the same amount of money on a regular basis is a time-tested investment strategy. By investing a consistent amount monthly or quarterly, a parent could build a portfolio over time, without trying to predict market cycles. When prices are low, buy more shares and when prices are higher, buy fewer shares. Contribute to an account using an automated funding option to take advantage of this investment strategy.

5. Give the gift of education

Encourage grandparents and other family members to contribute to a NextGen account. Unlike toys or clothes, the gift of education is one a child won't outgrow.

Additionally, NextGen account assets may be used at any U.S. accredited postsecondary institution; earnings generated are free of federal and Maine state income tax if used for appropriate education expenses; and the account owner retains control over assets.

Finally, many families wonder how assets in a 529 plan will affect college financial aid. Income, not savings or assets, is the driving factor in the federal financial aid formula. The formula includes an allowance that shelters a portion of assets that are counted (primary residence and retirement accounts are already excluded). 529 plans are generally treated as an asset of the parent.

Elizabeth Vanderweide, director of business development and customer relations at the Finance Authority of Maine, can be reached at evanderweide@famemaine.com.