Child Support for College Initiative
The goal of the Child Support for College (CS4C) initiative was to encourage long-term economic success for families in the child support system. The initiative assisted custodial parents receiving child support through the Office of the Attorney General – Child Support Division in opening a college savings account to pay their child’s future educational expenses and providing access to financial coaches. This project was the first of its kind in the country.
CS4C combined the efforts of RAISE Texas, three nonprofit financial coaching organizations (based in Austin, College Station and San Antonio), and the Texas Attorney General Child Support Division (CSD). With financial support from Citi, RAISE Texas provided the three financial coaching organizations with a grant to increase their capacity and provide incentives for parents to save for their children’s future educational expenses.
CS4C used the receipt of a lump sum child support payment to encourage savings and link parents to financial coaching services. Lump sum payments occur when a noncustodial parent makes a large “catch-up” payment to the child support system. The Child Support Division collects lump sums through their enforcement processes, which can be court ordered, obtained via IRS tax returns or through the liquidation of seized assets. When this occurs, custodial parents receive large payments - often unexpected and ranging from $100 to $150,000. The average lump sum payment in August 2011 was $2,444. Using the receipt of these funds as a moment to discuss financial planning, CS4C provided parents the opportunity to meet with a financial coach. This strategy successfully promoted savings and use of mainstream financial services for those receiving free tax preparation services.
Parents who chose to save in a Texas 529 college savings account were eligible for two matched savings opportunities based on their savings behaviors. The first incentive, based on the initial deposit into the college savings account, aimed to encourage enrollment and saving. A second incentive rewarded the development of a savings pattern during the first year of account ownership. Participants were required to meet with a financial coach a minimum of three times to be eligible for the initial match and one additional time for the second match.
The initiative began recruitment February 2012 and ran through August 31, 2013. Final incentive payments were disbursed by September 2013.
Eligible participants will be custodial parents living in the designated counties who receive lump sum child support payments exceeding their regular child support payments. Child support customers with large balances on their Texas Debit Card (child support payment card) or other financial means will also be eligible for the program; however, this population will not be formally targeted through recruitment efforts. Participants must agree that their intent is to use the program to help save for their children’s post-secondary educational expenses. While there is no income threshold for participation, the target population is the estimated 134,000 families living in the three areas receiving child support considered of low- or moderate-income. Demographic data will be collected on enrollees to determine the participation profile. The counties for eligibility, for any custodial parent, are based on the three targeted areas: Travis County; Brazos, Burleson, Grimes, Lee, Leon, Madison, Robertson, Walker, or Washington County; and Bexar County.
The Office of the Attorney General – Child Support Division (CSD) will lead recruitment efforts. To launch CS4C, a notice on the program and eligibility procedures will be distributed to parents in the three target areas. Every two weeks after the initial notice, CSD staff within the Family Initiatives Section will contact the parents who received a lump sum payment in the previous two week. Recruitment will continue until the program meets capacity.
The notification from CSD will provide the parent with details on the eligibility criteria, enrollment process and participant expectations. Additionally, it will direct interested parents to contact the local service provider directly.
CSD will meet with local child support office managers in the three target areas to explain the program and encourage recruitment. Materials will be distributed through local CSD offices to custodial parents. Regional CSD call center staff will receive a short script to facilitate handling calls.
A financial incentive is based on the amount of money participants save in their account. The incentive will be deposited directly into the Texas 529 account chosen by the parent. Financial coaches and RAISE Texas will oversee the deposit of the incentive and verify eligibility. The available incentives will reflect the following criteria: every participant who opens an account with a minimum of $25 is eligible for a $100 contribution. Contributions made before November 30, 2012, are eligible for a 20% match up to the maximum match of $400. All deposits made between December 1, 2012, and August 31, 2013, are eligible for a 1:1 match up to the maximum match of $400. The total incentive amount cannot exceed $500.
By maximizing the program with both savings and incentives, a participant could have $3,000 ($2,500 in savings and $500 in matching funds) in a college savings account after one year. For instance, under the Texas Tuition Promise Fund option for 2012, this program has the potential to provide support for an individual to prepay for 1.5 years toward an associate degree at a community college.
Incentives can be claimed through the Incentive Claim Form two times: November 30, 2012, and August 31, 2013. The total incentive, despite the number of times claimed, cannot exceed $500.
Experienced providers at the three sites will provide financial coaching. The financial coach will work with the custodial parents one-on-one over multiple sessions on specific financial concerns and goals related to their financial future and their children’s educational opportunities. Participants are not required to meet with a financial coach, but it is highly recommended.
The intent of CS4C is to provide financial coaching and encourage individuals to save for their children’s future educational opportunities; the savings vehicle must reflect these two intentions. The eligible vehicle for the incentive is a designated Texas 529 account. The financial coach will provide information on multiple savings vehicles and will not recommend or advise use of the Texas 529 plan in accordance with state securities laws. Parents choosing to use the Texas 529 account will be eligible. Certified financial advisors will be available by phone to provide information about investment options with the 529 plan.
There are two types of college savings accounts in Texas. The prepaid Texas Tuition Promise Fund allows parents to purchase credits to be used for the future costs of college tuition. The credits are purchased at present day tuition costs, thus providing a significant savings for future college costs. The more traditional Texas College Savings Plan allows parents to contribute into an investment account that will grow tax-free. The Texas Office of the Comptroller of Public Accounts oversees both plans. All money saved in a Texas 529 by a Texas resident is exempt from asset tests on state public benefits eligibility – TANF, Medicaid (parent and child), CHIP, and SNAP.
RAISE Texas will be the lead program administrator and serve as the fiscal agent.
CSD will assist RAISE Texas in training local staff on the program components and related child support processes.
An evaluation will be conducted by the LBJ School of Public Affairs to determine the following: