An Experiment in Crowd Funded 529 College Savings

In March 2017, Franklin Templeton Investments announced the launch of a crowdfunding tool called “Spryng,” designed for use by NJBEST and Franklin Templeton 529 College Savings Plan account holders.

Pronounced “spring,” the tool was developed to “harness the power of crowdfunding and social media, by creating a secure and convenient method to engage family and friends in saving for future higher education expenses.”

At the time, Roger Michaud, director of college savings for Franklin Templeton Investments, highlighted the importance of starting the college savings effort early, investing regularly and asking family and friends for help along the way. He explained how, within the Spryng system, the underlying technology platform creates a customizable profile, featuring a personal message and information on savings goals. Once a profile is established, Spryng generates a secure URL that can be emailed or shared with potential gift givers via various social media platforms. When gift givers access the gifting profile, they can choose an amount to contribute, with a minimum of $10 and a maximum of $2,500.

Now, more than a year into the project, Michaud and Mike O’Brien, director of program marketing, tell PLANADVISER there have been some 4,200 profiles created and $160 million in total savings goals established. The pair explains that the firm was unsure how many profiles to anticipate or what the total savings goal might be at this early stage of the roll out—given that crowdfunding is still a relatively new phenomenon that can be hard to predict—but both also suggest these figures have outstripped even their more aggressive estimates.

At this point the firm has not conducted a systematic review of profile performance, but anecdotally, gift givers have typically been a friend or family member of the account owner or beneficiary, though other examples of giving have demonstrated the broad power of the platform. In one case, Spryng was used by an adviser to organize a community support effort when a mother with four young children fell seriously ill. Following an outreach effort, hundreds of people from the surrounding community ended up putting in large- and small-dollar donations into a 529 account for each of the four children—representing a large fraction of what the kids will likely end up needing to pay for college in the future.

“That’s not indicative of every profile, but it demonstrates the power of crowdfunding quite well,” O’Brien says. “The adviser deserves real credit here because he worked very hard to set that situation up for the individual and the community. It was great to see that happen, and we hope to see more successful examples like that.”

As O’Brien and Michaud point out, it is far from those facing unexpected hardships who wonder how they will be able to afford the steep cost of a college education. More and more, retirement plan advisers and plan sponsors hear from participants that ballooning student loan debt is having a negative impact on their daily lives—and on their ability to plan effectively for the future. What’s more, plan officials may be surprised to learn that student debt is not just effecting newly hired Millennials, as U.S. student loan debt has topped $1.4 trillion, including nearly $75 billion in “parent PLUS loans” taken out by individuals on behalf of their college-age kids.

“The Federal Reserve has recently published data showing that nearly 7 million student loan borrowers are between the ages of 40 and 49,” O’Brien adds. “This group has something like $230 billion in student debt, at the same time that they are in their prime retirement savings years. They are stuck in the sandwich of paying back their own student loan debt and taking out new debt for their kids, while also having to face the retirement savings effort. It’s a real burden.”

O’Brien and Michaud further note that now is an important time to remind savers that there are two major elements of the 2017 tax reform legislation that impacted 529 savings plans; these may be cause to reassess a previous choice not to open a 529 account.

First, up to $10,000 per year may now be withdrawn from 529 savings plans, federal income tax-free, to pay for “tuition expenses” at private, public and religious kindergarten through 12th grade schools. Second, the federal tax law now allows rollovers from a 529 savings plan account to an account in a 529A “ABLE” savings plan for the same beneficiary or a “member of the family” of the same beneficiary.

As Michaud highlights, the 529 ABLE savings plan approach to savings can be a real boon to those with a disability or who care for a family member with a disability. Under the new tax law, the amount that may be rolled over cannot exceed, together with contributions from other sources to the applicable beneficiary’s plan account, the annual limit on contributions to an ABLE account ($15,000 in 2018) without regard to the increased limit permitted for contributions by certain working beneficiaries.