Questions raised about St. Paul college savings program

Updated: January 02, 2020 07:11 PM

St. Paul Mayor Melvin Carter had a nice surprise for parents of babies born on New Year's Day at Regions Hospital. He gave them free onesies for newborns along with the promise of $50 to start a college savings account for each child.

"We believe in our children in St. Paul so much that we're going to start every child born in St. Paul with $50 in a college savings account," Carter said at a news conference on Wednesday.

On Thursday, Republican lawmakers continued to question the program called "College Bound St. Paul."

Rep. Sondra Erickson (R-Princeton), the minority leader on the House Education Finance Committee, questioned the efficacy of the program that was partially funded with $500,000 from the Minnesota Legislature in May.

"This was a piece of legislation that was not ready for prime time," Erickson told 5 EYEWITNESS NEWS.

She has multiple concerns about the program, including the low rate of return the accounts will earn. Bremer Bank will pay interest of 1.03%, compared to about 7% in recent years in the state's 529 College Savings Plan.

St. Paul program gives newborn babies a head start on college savings

"It's lacking in substance as to why this was created and what it's going to accomplish given it's a savings account," Erickson said, noting the low interest rate.

Mayor Carter said research has shown that kids with almost any level of college savings are three times more likely to go to college.

The state lawmaker in the Minnesota House who authored the bill to help fund the program, Rep. Kaohly Her (DFL-St. Paul) said as a member of a low-income immigrant family, she was inspired to go to college by having $1,000 to get her started in the early 1990s.

"The intention was never to create an instrument for someone to maximize the return in the market," Her told 5 EYEWITNESS NEWS. "The goal was always to create an instrument which would invest in a child and change behaviors in families that have been systematically excluded from participating in financial growth in our country."

However, the St. Paul program has no "means" testing, which means the $50 accounts are opened for children in low-income and wealthy families.

Her said the program will continue to evolve and could eventually include an option for wealthy families to donate their funds to low-income families. It already offers families incentives to contribute some of their own funds to the accounts.

As a pilot program, the goal is to also expand it to other Minnesota cities in the future if it's successful in St. Paul.

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