Last week marked the first chance for parents and others to open accounts with the Michigan Education Savings Program, a law signed by Gov. John Engler this summer allowing people to set aside up to $125,000 for future college costs.
The program is geared toward middle-income families with younger children. An MESP account can be opened with as little as $25. Anyone who makes less than $80,000 and contributes to an account for a child six years old or under will get $1 from the state for every $3 contributed in the first year, making Michigan the only state with such a matching grant.
The MESP program differs from the Michigan Educational Trust because it does not require a large upfront investment and can be used for any school in the country. Students with the MET can only attend schools in Michigan.
Also, money saved through MESP can be used for tuition, room, board, or books - MET money can only be used for tuition.
John Truscott, Englers press secretary, said the MESP is a better deal for parents.
Its making college more affordable, Truscott said. Parents who wouldnt be considered rich, just barely over the threshold for financial aid, will have this option.
The program also totes the advantage of being tax free. Up to $5,000 per individual can be deducted from state taxes, or $10,000 per couple. Federal taxes can be deferred until the money is withdrawn, and will be taxed at the students rate.
Michigans funds will be managed by New York-based TIAA-CREF Tuition Financing Inc., which runs 11 other state-sponsored college savings programs.
Kari Naghtin, the principal of Glencairn Elementary School, 939 N. Harrison Ave., said its never too early for parents to begin saving for college. With two young children of her own, she understands the looming costs of higher education.
On the surface, what I saw in this plan looks good, Naghtin said. Anything we can provide families with to help pay for college costs is good.
According to TIAA-CREF, children born in 2000 can expect a four-year college education to cost around $100,000 at a public university, or $235,000 at a private college.
Through a tuition guarantee initiative, tuition at MSU has been kept stable, only moving in accordance with the rate of inflation.
Financial aid officer John Garcia said the MESP has several advantages, but is also a riskier investment.
The main difference between the (programs) is that the MESP is not an insured program, unlike MET. With MESP, its more of an investment.
The benefits are that it is much easier to get into it with $25, while the MET is much more expensive.
Garcia said he hopes the MESP will help trim the numbers of student and parent loans taken out to cover education costs, and to encourage early saving.