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Notre Dame unveils tuition savings plan

Matt Bramanti | Monday, September 29, 2003

Notre Dame has joined a popular prepaid-tuition program which offers significant tax benefits to families, university officials announced. Joseph Russo, director of the Office of Student Financial Services, praised what he called “a more secure approach” to saving for college.

The program, called the Independent 529 Plan, allows families to lock in the current level of tuition and fees-minus a small discount–by contributing to a specially managed investment account. Contributions of up to $110,000 are not subject to the federal gift tax, and the investment grows tax-free, as long as the funds are used for educational expenses.

The accounts are also portable, meaning the money can be used at any of the 200 participating private colleges and universities. In the event a beneficiary attends a public or non-participating private institution, the funds can be used for those expenses without penalty.

While 529 plans-which get their name from the section of the tax code that authorized them-have been around since 1997, they were administered by states, with the intent that the money would be used at public universities.

Recognizing the need for a plan to help families pay for expensive private education, hundreds of institutions formed the Tuition Plan Consortium, aimed at lobbying Congress to amend the 1997 law which authorized 529 plans. “There were over 200 institutions who supported the effort,” Russo said.

The result was the first 529 plan administered by colleges rather than states.

“Notre Dame has, as part of our basic mission, the responsibility to take a leadership role in promoting planning and saving for education,” Russo said. “We’re taking a national leadership role, and we’re very proud of it.”

The program is administered by TIAA-CREF, a New York-based firm that manages over $250 billion in assets. By investing in conservative but profitable securities, TIAA-CREF-the nation’s largest pension fund manager–can minimize risk, while ensuring that the money will grow steadily over time. Russo praised the company as a leader in the college-savings business.

“TIAA-CREF manages a number of programs, so they’ve got a lot of experience,” he said. The plans have proven to be very popular among families who fear skyrocketing tuition bills in the future. “There’s $25 billion out there in 529’s,” Russo said.

The money is certainly needed. According to a 2002 survey by investment bank Morgan Stanley, only 33% of U.S. families believe they are saving enough for college expenses, while 54% of families have not started saving at all.

At the current rate of hikes in tuition-around 5 percent-a Notre Dame education for a child born today will cost over $290,000, excluding room and board.

Russo acknowledged that marketing the program will be challenging, since many of the students it will help are still in grade school, or even younger. He said the Alumni Association is working to educate its members about the plan, since about 25% Notre Dame undergraduates were born to alumni. Notre Dame financial aid officials will also work with TIAA-CREF to build awareness of the program.

Russo encouraged families to start saving early. “With a little discipline early on in a young family’s life…paying for college can be a lot easier,” he said. “[The 529 plan] is another product that can keep a Notre Dame education affordable.”