Maine parent Kimberly Lane got a head start on college savings for her two children. She received the applications for a $500 college savings grant for each of her children before she even left the hospital after their births.
States across the country are finding ways to give families free money via grants and scholarships for their 529 plans, tax-advantaged college savings accounts.
These programs are in addition to other 529 plan funding help such as tax deductions, credits and matching grant programs. The $500 grant Lane received is part of a program in Maine that gives all babies born in the state $500 when enrolled in a 529 plan by their parents.
"Both of the hospitals made sure that we were aware of the grants right off the bat," Lane says. "I filled out applications for both children with the help of the hospital and my sister-in-law."
[Look to workplace benefits to aid 529 plan savings.]
If you're expecting a child, ask your county or state about baby grants or if there is a plan to add them in the future. It's a growing trend across the country for states and counties to give money to babies to start their college savings, says Elizabeth Bordowitz, CEO of the Finance Authority of Maine, which oversees the state's 529 plans.
In addition to state-level grants, counties in Maine, Ohio and California offer their own college savings grants for every baby born in those counties to be deposited into a 529 plan, she says.
The best part of the baby grants is parents have a long time for the invested money to grow.
Since Lane received a grant for her elder son, four-year-old Sawyer, the money has grown by $200. Her two-year-old son Ian's account has grown by $100. If each account grew by $50 per year, each child would add $900 to their college savings by age 18 for a total of $1,400 thanks to the initial grants.
For college-age students, states such as Maine and Colorado offer need-based scholarships where the money is deposited into 529 accounts for students entering or continuing college. Similar to applying for federal student aid, scholarships are awarded based on answers to the Free Application for Federal Student Aid.
[Decide if you should purchase another state's 529 plan.]
In Maine, there is no paperwork - the application is automatic for all students filling out the FAFSA. The total amount of money awarded is based on the amount available within the current year's budget.
The scholarship program was started when Maine developed its 529 plan, to help parents who didn't have long-term college savings.
In Colorado, there is an application process for scholarships, which ends on July 31 this year. Students must have had an eligible CollegeInvest 529 account for at least two years, submit an online application and prove an expected family contribution - the federal calculation of family need - of $25,000 or less.
The money is deposited into the 529 plan account and can only be used for qualified higher education expenses. The scholarship is for $2,000 and students can renew and reapply every year for a total of four years.
[Find out what 529 plan savings can pay for.]
In states that don't offer grants to newborns or scholarships to students based on financial need, students and parents should look for other 529 scholarship opportunities. Maine, Missouri, Nevada and Ohio are just a few states that offer scholarships based on essay submissions.
In Maine, some scholarships are sponsored and essays are judged by local professional sports teams. The money has to be deposited into a student's 529 plan account.
If parents look for free money for their college savings accounts, they might be surprised by what's available for their children.
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
- Financial Aid