As life goes on and parents watch their children grow into maturity, contemplation of college becomes more important with every passing school year. Mothers and fathers deeply ponder: how can we afford college for our kids?
If the family has a parent who graduated from the UA system, they may recall that their attainment of a higher education was thanks to the help of the UA College Savings Plan. To the worrisome family full of college-bound kids, news that the plan is still in place and has improved should relieve some financial worries.
Effective since the beginning of July, the UA College savings plan has reduced its fees significantly. These reductions are clear indication of a long commitment to help Alaskan families save for college.
The program management fee has been cut by nearly one-third, to 0.20 percent, and the annual account fee has been reduced by $5, to $20.
The program management fee is based on “basis points,” which are one-hundredth of a percent. The fee was previously 28 basis points, but has now been lowered to 20 basis points. This applies to any portfolio available under the plan with fees.
On every occasion that a portfolio’s value is determined, the program fee is reflected in that price, according to Director of the UA College Savings Plan Linda English.
“(The fee) is based on how much money a person has in their account. The lower the fee is the more money that stays in a given account,” English said.
The UA College Savings Plan currently has over 1,000 Alaskan resident accounts worth over $121 million.
English stated that the plan is always seeking new methods to help Alaskans save money for college.
“We believe that sending your child to college and saving for college are some of the most important things a family can do, outside of saving for retirement or health issues,” English said. “The industry has matured and the program has grown, so really it needed to change to reach efficiency with the size of the plans and, quite frankly, to compete with other plans throughout the country.”
While the annual account fee, which is charged to the account every November, has been reduced to $20 the fee is waived altogether for customers in certain instances.
If a customer invests regularly with payroll deductions or automatic monthly contributions, the fee is waived. The fee is also waived if a customer has $25,000 or more invested for one child or a total of $75,000 or more invested for multiple children.
Three different investment approaches are offered by the plan: enrollment based portfolios, static portfolios and ACT portfolios.
Portfolios are groups of mutual funds that are invested in stocks, bonds or money markets. This offers a diverse range of investments. All portfolios, however, are subject to market risk and include possible loss of principle.
The money market portfolio offered by the plan is very conservative and designed to protect a customer’s principle. On the other end of the spectrum is the 100 percent stock portfolio, which is the most aggressive option available.
Life circumstances tend to determine a family’s choice when picking an investment option. Everyone has different goals in mind stated English.
“Some people want to make as much money as possible, and they’re willing to risk going against the market. Some people don’t want to risk a thing and they want to be very safe,” English said. “We (at the plan) think the ACT portfolio offers Alaskan families great benefits with its asset allocation, extremely low fees and the tuition value benefit, but it depends.”
Locking in tuition value can be very beneficial. Participants of the ACT portfolio have their accounts tracked in both monetary form and in the number of UA credits that can be bought at the time a contribution is made. Thus, when a student comes to enroll at the university tuition may have gone up by 5 percent, but the earnings on that individual’s portfolio have only gone up 3 percent. The plan guarantees to pay for the difference.
“It’s a tremendous benefit if you look at what happened in the last year where tuition went up 10 percent, but the stock went down 15 to 20 percent,” English said. “We made up the difference for those students, so that’s a great benefit.”
The ACT portfolio also includes no annual or account management fees.
When asked about the future of the UA College Savings Plan, Linda English stated it’s hard to predict what will happen with the program, but she is always looking for ways to make the program more affordable for participants.
“Rest assured that our goal is to help Alaskan families the best we can, and having as low of a fee as possible is to that end.”