Every new baby born or adopted in Colorado starting today will get $100, at least if their parents create a CollegeInvest account for them.
That is part of a new program called First Step approved by the Colorado Legislature during last year’s session, which is designed to encourage families to start saving for their children’s college education at an early age.
The money comes from interest earned from the state’s CollegeInvest program that otherwise would go toward scholarships or grants — meaning it doesn’t use taxpayer dollars. It is expected to cost about $1.7 million the first year and increase to around $3.5 million as more parents learn of it.
“First Step makes a down payments on the future of our state with an early investment in the education of our next generation,” said Rep. Leslie Herod, D-Denver, who introduced the new law with House Speaker KC Becker, D-Boulder, and Senate Majority Leader Stephen Fenberg, D-Boulder.
“As tuition rates increase, we have to ensure we’re setting our students up to thrive when it’s time for college,” Fenberg added. “That means focusing on economic security to set them up for success, and this bill helps to put that in motion. Giving children and families a strong start with a dedicated college fund they can grow throughout school accelerates their path to higher education.”
The money can only be used when parents set up special CollegeInvest 529 accounts. That’s the section of the U.S. Internal Revenue Service code that allows for a federal income tax deduction for investment income earned through a higher education savings account.
The state also offers a similar income tax deduction on interest earned from such accounts.
Currently, CollegeInvest has more than $8 billion in assets and oversees more than 375,000 accounts.
Based on similar programs in other states, more than half of the parents of newborn or adopted children in the state — about 34,000 in the first year — are expected to open such accounts, which are maintained under the Colorado Treasurer’s Office.
To qualify for the money, those accounts must be opened within five years of a child’s birth or adoption, and money in the individual accounts must be used at accredited colleges and universities.
According to the Washington University Center for Social Development, children whose parents created college savings accounts for them are seven times more likely to attend college.
“The crushing financial burden of student debt is a real threat to Colorado economic sustainability,” said Colorado Treasurer Dave Young. “Saving is the best way to avoid costly student loans, and with the added benefit of a state income tax deduction, CollegeInvest offers the most effective tool for Colorado’s hard working families to maximize their savings.”