Understanding 529 Plans: Equipping Students and Parents for Success

How to provide convenient payment options

Institutions are struggling to help students find new ways to pay for tuition and fees. At the same time, college savings 529 plans are becoming increasingly popular, but disbursing these funds to schools can be burdensome for students and parents. Is your campus prepared to help students and parents understand how they can disburse their 529 plan funds in the most convenient way?

In this web seminar, presenters provided an overview of 529 plans, and outlined some key strategies for communicating with students and parents to help them understand their plans and to clarify the most common misconceptions, and for helping your business office prepare to accept 529 plan transactions.

Speakers

Pamela Wilkes
Senior Solutions Engineer
Transact

Karen Phillips
Director of the
Business Office
DePauw University (Ind.)

Pamela Wilkes: We are sharing with you how we are integrating with Ascensus to process 529 plans. Ascensus is one of our great partners. They have over 4.3 million 529 accounts, holding 30% of the market. They provide services for 19 states with 35 plans. Transact Payments powered by Cashnet’s integration with Ascensus includes 13 states and the District of Columbia, and 21 plans from various states, with $102 billion in assets under administration.

What is a 529 plan? The program is designed to help meet education costs. States generally sponsor plans. Plans are flexible, convenient and simple to use. There are federal and state tax advantages. They are professionally managed investments, and the plans include estate planning and gift tax advantages.

There are two types of 529 plans: savings and prepaid. Families can take advantage of whichever best fits their needs. There are federal and state taxes to consider. Earnings are tax-deferred; some states offer tax credits and other benefits; and qualified withdrawals for education are tax-free.

The owner of the account can be a parent, grandparent, relative or friend. They control the funds. They can change who receives the funds, and there does not need to be a family relationship.

What happens if the owner has established an account for someone and the person does not attend college? The owner can leave the money in case the person changes their mind. Or, the owner can give the funds to a different person. However, if this person is not a family member, there may be some taxable events to consider. The owner can also make a nonqualified withdrawal with some tax guidelines to consider.

Almost two million new 529 accounts have been opened in the past five years. High school and college students account for 35% of the increase.

“The owner of the account can be a parent, grandparent, relative or friend. They control the funds. They can change who receives the funds, and there does not need to be a family relationship.”

Karen Phillips: We implemented 529 plans with Transact’s Payment powered by Cashnet in July 2016. And we actually began our relationship with Cashnet back in early 2011, so once they made that option available, we took advantage. Since then, we’ve had 368 transactions for a little over $8.71 million.

As far as university administrators, there’s an ease in bank reconciliation. It’s a one-to-one match. This helps our university with cash flow, as it reduces our accounts receivable balance. Payments post in real time to the student’s account, as opposed to having to wait for a check to arrive in the mail. It reduces registration holds for nonpayments, and it reduces overpayments. The system will not allow an overpayment from a 529 plan, so there are no refunds to a plan, which can be problematic, difficult and time-consuming.

It’s very easy to request funds from the servicer through the portal with Cashnet. It’s just a payment option. You can also take additional payments if the student needs them—perhaps their 529 doesn’t pay their balance in full, or they’ve maxed out how much they can apply but they can still make payments by ACH transfer or credit card through Cashnet.

When managing the 529 plans, the biggest thing for us is communication. This year, we sent postcards to home addresses before students arrived, talking about our payment plan and highlighting that they could use the 529 option as a payment source. We have posters across campus. We send emails, and if the parent or student walks into or calls the cash receipts office, we tell them about the plans.

You need to encourage the parents to know their plan regulations. Each state has different regulations, and it’s up to the parents to know these regulations. They’re not something that we can know from state to state, so we expect parents to understand them. Some plans allocate an advisor for the state plan, so they should also reach out to that advisor.

To watch this web seminar in its entirety, please visit UBmag.me/ws09191