City Council
MEETING DATE: 8/8/2018
TITLE:
Title
Kindergarten-to-College Program
End
FROM:
Tami E. Scott, Administrative Services Director
RECOMMENDATION:
Recommendation
This item is provided for information and discussion only. Jose Cisneros, Treasurer of San Francisco is scheduled to provide further information on the San Francisco program during the study session on September 11, 2018.
Body
BACKGROUND:
One of the goals identified at the January 27, 2018 City Council goal setting session was to evaluate the possibility and costs of a program to seed a college fund for public school kindergarteners.
A Kindergarten-to-College ("K2C") Savings Program, currently being done in the City of San Francisco, is a college savings program set up in partnership with the local school districts and the participating City/County/State. A K2C plan is established automatically for each district student entering kindergarten, or a participating program year. Typically, the City starts each account with $50, and offers additional incentives to families.
Studies have shown that students with college savings accounts in their own name are more likely to attend college and four times more likely to finish.
DISCUSSION:
How does the program work?
When a student starts kindergarten, the City/County/State sets up a K2C account with a $50 starting balance initial incentive from the program. The K2C account is issued an identification card and tracks the contributions and incentives for each student.
Making Deposits and Saving
Deposits can be made with the student’s name and student’s account number. For a cash deposit, you will also need to provide one valid government-issued photo ID and other identifying information. For a check or money order deposit, you will only need your student's K2C Account number and name. Deposits can also be made by check/money order deposit by mail; direct deposit, bill pay
Gifting to the account
Unconditional contributions (deposits) can be given by a third party to students and deposited into student's K2C account whether or not student completes the K2C Program. In other words, the funds belong to the student in all circumstances.
The City of San Francisco Program Provides for Additional Incentives
Incentives are funds that a student in the K2C Program can earn by participating in the program and completing certain requirements. The current incentives for the K2C Program are:
$50 Initial Incentive. A K2C account is opened for each eligible student when starting kindergarten, containing an initial incentive of $50 from the City and County of San Francisco.
$10 Save Monthly Bonus. Any month you save at least $10, be rewarded with an immediate $10 bonus. You are eligible to receive a total of $60 for any six months of saving. This incentive is available to all K2C account holders that did not earn the previous $100 Save Steady Incentive and will expire December 31st, 2018 for accounts opened before December 1st, 2017.
$10 Save Now Bonus. If you have not previously made a contribution in your student's account, you have the chance to earn an additional one-time $10 bonus if you make your first contribution in their account before December 31st, 2018.
$20 K2C Account Registration Bonus: If you register on the K2C portal to view your student's account activity, your student will receive a $20 bonus in their account. This incentive is available for all K2C account holders who have not yet registered their account on the K2C portal.
Other aspects of the program can consist of certain incentives, which are conditional and contingent upon attendance in post-secondary education.
Will there be additional incentives in the future?
Other incentives may become available in the future. Certain incentives may require a signed Release of Information form.
When will I see the incentives credited on my account?
Please allow up to a month for incentives to be reflected in your child's K2C account. Incentives are conditional and contingent upon attendance in post-secondary education.
How do I check my child's K2C account balance?
You can check your account balance online by signing in or registering at www.k2csf.org <http://www.k2csf.org/>
Account Features and Policies
What type of account is the K2C account?
The K2C account is a deposit-only savings account that is a restricted account intended for post-secondary educational use. K2C accounts are custodial accounts owned by the City and County of San Francisco under its tax ID number, for the benefit of the student. The student is named as the beneficiary of his/her account.
Do I need to take any steps to open my child’s K2C account?
When your student starts kindergarten, the City and County of San Francisco automatically sets up a K2C account in the form of an account record for your student with a $50 initial incentive from the K2C Program. Shortly after school begins, a welcome kit for the K2C Program is sent to the home explaining the details of the Program. Once you receive your K2C account card, you can start saving for your student.
Are there any fees or charges related to the K2C account?
No.
Does the K2C account earn interest?
Savings in the program do not accrue interest. But students can earn Incentives based on their contributions. Incentives are conditional and not earned until the student completes the Program requirements.
Can I send part of my tax refund into my child’s K2C account?
Yes. Tax refunds are a great opportunity to make an extra contribution to your account. You can deposit any portion directly into the K2C account.
Can I withdraw the money in my K2C account at any time?
The K2C account exists to help make college a possibility for every student. As a result, incentives are bound to that purpose and are distributed only when a child enters post-secondary education.
If your student does not attend post-secondary education, then all the funds except for incentives will be released to the student upon turning 25 years old. For students that serve in a national service program (such as the US Military or Peace Corps), each year of service may increase the maturity date by one year, to a maximum of five years, or attaining the age of 30.
In the case of an emergency or unforeseen circumstance, the student and/or parent/guardian may request an unqualified withdrawal from the K2C Program. A withdrawal forfeits previous incentives related to contributions.
K2C vs. 529 Plan
The K2C plan earns no interest, while a 529 Plan works like a mutual fund, mostly investing in stocks and bonds in the hope the account will grow faster. A 529 Plan has no contribution limits. A K2C Plan has a lifetime cap of $32,500. Up to $10,000/year of a 529 plan can be used for elementary and secondary education as well as for college. The K2C program is set up to only be used for college. The 529 Plan will be penalized 10% if withdrawn for any other purpose and the funds from a K2C account can be withdrawn (less incentives) without penalty but would not have had earned any interest. If you have excess funds in the 529 account after the child completes college, then that money will be taxed by both the state and federal government. Currently, 529 plans could possibly affect financial aid because these plans are considered part of the parent’s assets (this depends on who owns the account and the amount of money considered to qualify as the estimated family contribution (EFC) as the first $20,000 falls under the parental asset protection allowance and is exempt). Since the K2C plan is set up to be owned by the City/County/State for the benefit of the child, it is not considered an asset for the calculation of financial aid; however, when withdrawn for educational purposes, the incentives would be reported as income for purposes of calculating financial aid. You can contribute as much money as you wish per year to either account.
Moving In-and-Out of K2C.
What happens if my child transferred schools within the District?
If your student has a K2C account, the account will remain open.
My child is new to the District in a grade above kindergarten. Will my child get a K2C account?
If your student is entering a District school in grades K-5, your student will receive a K2C account.
My child is in Transitional Kindergarten, will he or she receive an account?
No, students will only receive a K2C account when entering Kindergarten in an SFUSD school.
What happens if my child leaves the district?
If there are any contributions in your K2C account, the account will remain open and active for your use. Any incentives you accrued while in the School District will remain in your K2C account. Once you leave the School District, you will not be eligible for any future incentives. All other program rules still apply. If there are no contribution made to the K2C account, the account will be closed after leaving the School District.
Use of K2C Funds after graduation
Can I use the funds for any kind of cost?
In order to receive all funds, they must be used for post-secondary education.
What will happen to the account if my child doesn't want to go to college?
If the student decides not to pursue post-secondary education before the age of 25, he or she can request the funds from the account. All funds with the exception of incentives will be disbursed to the student.
Can I transfer the account to a different family member if the funds go unused?
You may withdraw the funds from your K2C account and deposit them into another account. However, any incentives will be forfeited.
Can I use K2C funds outside of the U.S.?
No.
What if something happens to my student, who is the beneficiary?
Once K2C is contacted by the parent or legal guardian and provided the required information to withdraw their student from the Program, all the funds with the exception of incentives will be disbursed.
Additional questions we asked of SF program director:
How long has the program been in effect?
Program officially started in the spring of 2011 with a pilot of 25% of kindergarteners in the 2010-2011 school year. Full implementation for all kindergarteners began with the 2012-2013 school year.
Do you see the program as a major success?
Yes, we view the program as successful. Approximately 17.5% of students/families have made at least 1 deposit. Almost $3 million have been saved by students/families (not including any funds from the city).
Who monitors the program? We (Office of Financial Empowerment) run and monitor the program. Citi Financial Inclusion supports us with an administrative portal, and access for students/families to see their balance. Bank branches just take in-person deposits (no customer service - i.e. will not look up account numbers or balances).
What are your annual costs, associated with the program?
Ballpark number is around $1 - $1.2 million. This includes seed and incentives funding, and staff.
Note: A few other Large Cities such as St. Louis and NY already have, or are considering such a plan, but all will deposit to a state run 529 plan, rather than try to manage at a local level. Most of these existing college plans are run at the State level with the exception a few larger Cities that have resources to administer and fund such a plan as the K2C.
FISCAL IMPACT:
The Palm Springs Unified School District averages around 520 incoming kindergarteners per year, which at $50 per account would be $26,000. Additional incentives as outlined above and made available would be lower in the earlier years but could grow to well exceed $500,000+ per year. .
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