SPRINGFIELD – State Sen. Dan McConchie can relate to how the two state-managed college savings programs can help Illinois families.
“It’s largely gonna be able to help cover our kids’ college [costs],” the Lake Zurich Republican said Tuesday during a Higher Education Committee hearing.
The committee learned that the assets of Bright Start and Bright Directions – which differ only in the investment options offered – reached $10.4 billion in December.
The programs have also seen a 40 percent increase in accounts over the past 4 years, and 52,000 of the total 625,000 accounts were added in 2018 alone.
The committee was updated by Fernando Diaz, chief financial product officer in the state treasurer’s office, which administers Bright Start and Bright Directions.
The programs allow account holders to put money in a variety of investment portfolios, overseen by the Union Bank and Trust Company, and take it out tax free when it comes time to pay for educational expenses such as tuition, computers, books, and room and board.
McConchie said he was prompted to sign up by the state tax deduction benefits, which go up to $10,000 for a single contributor. This, along with no account fees and no minimum contribution limits, helped Bright Start get gold ratings 2 years in a row from investment research company Morningstar.
Diaz said the state hopes to get a million more accounts in the programs. And while a recent economic bear market prompted a Bright Start newsletter urging members to “focus on the long term,” neither the skyrocketing costs of college expenses nor the state’s poor financial situation have stopped people from signing up.
“We didn’t see an impact [of the state budget impasse] from a savings standpoint,” Diaz said. “Most of the impact was on school selection.”
Bright Start and Bright Directions contrast with Illinois’ other college savings program, College Illinois, which has $302 million of unfunded liability and only the backing of a “moral obligation” to meet those payments, according to Eric Zarnikow, executive director of the Illinois Student Assistance Commission.
College Illinois is different from Bright Start and Bright Directions in that it sets payments guaranteed to cover the future cost of tuition at various state schools, based on a locked-in rate of today’s tuition levels.
But with rising college costs and falling contracts with universities, the program hasn’t opened to new investors for two years, and will likely need $81 million from the state by 2026 to meet its payments, according to Zarnikow.
Also at Tuesday’s hearing, Diaz hinted at a new college savings program in the works at the treasurer’s office.
In most ways similar to Bright Start and Bright Directions, the program would launch universal education savings accounts for newborns, with the state making a starting contribution to the family.