AUGUSTA, Maine — More than half of the parents of Maine’s newborns are leaving a $500 gift on the table.
The Harold Alfond College Challenge, established in 2008, puts $500 in a NextGen college account. NextGen is a state-sanctioned, tax-sheltered investment account dedicated to saving for college or postsecondary training or education.
All children of Maine parents, or children born in Maine, are eligible for the funds. The only requirement for parents — or grandparents or others who wish to see the funds set aside — is that a NextGen account be established for the child on or before his or her first birthday.
Mila Tappan and Elizabeth Vanderweide of the Finance Authority of Maine, which administers the program, say to date fewer than 40 percent of those eligible are using the program.
“The eligibility criteria are very simple,” Tappan said.
The two women have some ideas about why so many people are not using the program.
For one, the program looks like “free” money, and consumers are taught to be suspicious of such too-good-to-be-true offers, Tappan said.
Another likely obstacle is that parents might believe they have to put in some of their own money to receive the $500. Not so, although the late Harold Alfond created the program as a way to encourage Maine families to begin saving for their children’s education.
Yet another barrier is the paperwork. It can be daunting, the women said, though recent changes have made it easier to complete. Some personal information, and the child’s Social Security number, are required. But those opening the NextGen account can feel confident accessing the forms at FAME’s Web page dedicated to the program, 500forbaby.org. Or they can call FAME at 800-228-3734 for help.
The No. 1 reason parents give for not opening the account is that they don’t have the time. Yet Vanderweide says completing the forms takes 10-15 minutes.
What if the child doesn’t go to college? Often, parents who did not attend college do not expect their children to continue beyond high school. Yet the account can be used for any school or training facility accredited by the U.S. Department of Education — in-state, out-of-state, public or private. Some eligible institutions are out of the U.S., such as McGill University in Montreal, Canada.
If a child born this year wants to be truck driver or a hairdresser in 18 years, he or she probably could use the NextGen account to pay for the necessary training, Tappan said.
Not only are FAME officials disappointed to see so much money left on the table, but a larger loss is looming — children are six times more likely to pursue some sort of postsecondary education if they have a college savings account, said Vanderweide.
In response to the dismal use rate of the program, FAME is doing outreach work, working with the Department of Health and Human Services, hospitals, physicians and day care providers to contact parents. Four mailings are sent in the child’s first year, and Tappan said 40 percent of those are contacted by telephone as the child approaches that first birthday when eligibility expires.
Another outreach is what FAME calls its “casting calls,” at which free professional baby photos are offered. When parents attend, FAME officials held them complete the forms to open the NextGen account. One such event is scheduled for 10 a.m.-2 p.m. Saturday, May 5, at the University of Maine at Augusta’s Richard Randall Student Technology Center.
Tappan said assuming the investment fund earns 8 percent interest, the $500 grant would grow to $1,998 after 18 years. If parents or grandparents or someone else contributed $50 each month for those 18 years, the fund would have $26,264 when the child graduated high school.
Even at 5 percent interest, the fund would total $1,203.31 after 18 years with no additional money added, and $18,760 if $50 were added each month, she said.
FAME also administers a program that provides an initial $200 match when a NextGen account is opened with $50 for a child (or adult) of any age. And in the first 24 months, FAME will further match up to one-third of the contribution to the account, up to $400.
An early version of this story contained incorrect information provided by Finance Authority of Maine. A $500 investment over 18 years at 5 percent would yield $1,203.31, not $1,942, according to FAME.