Higher Ed ‘Baby Bonds’ Gain Traction in New Jersey’s Revised Budget Proposal

By Hugh T. Ferguson, NASFAA Staff Reporter

New Jersey’s Democratic Governor Phil Murphy is looking to enact a proposal that could garner a baseline investment in children’s higher education pursuits by providing a savings bond, so-called “baby bonds” to children born in 2021.

The proposal comes as state budgeting calendars are being plagued by the continued prevalence of the novel coronavirus, and legislatures and governors are aiming to work out their fiscal restraints with revised proposals, some of which include new long-term investments.

“This is a place where New Jersey will lead, with the first statewide program of its kind,” Murphy said during a press conference. “As this child grows, so, too, will the value of this bond — to help pay for college, to help make a down payment on a home, or to help start a small business.”

In New Jersey, the proposal would provide a $1,000 deposit for the approximately 72,000 babies born in 2021 into families whose income is less than 500% of the federal poverty level, or $131,000 for a family of four. When these residents turn 18, they would then be able to withdraw these funds which could be used to help them pursue “wealth-generating” activities, such as investing in higher education, buying a home, or starting a business. It’s estimated that the proposal, which is paired with a number of tax hikes, would cost $80 million a year and require legislative approval.

The governor’s office said the proposal would assist three of four children born in New Jersey, and according to an analysis by the New York Times the bond would be worth about $1,270 after 18 years. Murphy, in remarks to the New York Times, said that it was possible for the state to add additional funding to each child’s account and that the proposal was meant to serve as a starting point.

“The Covid-19 pandemic has disproportionately impacted low income communities and communities of color,” the governor’s office said in a press release. “The Governor’s budget recognizes those impacts and protects core programs to aid those communities in their recovery. The revised budget proposal also includes targeted growth to address long-standing disparities and ensure that the recovery includes all New Jerseyans.”

The initiative stems from a proposal offered by Sen. Cory Booker (D-N.J.), but is significantly scaled back from the federal legislation that would also provide up to an additional $2,000 annual deposit into a child’s account, depending on family income, resulting in an estimated total investment of $46,215 after 18 years.

“[Murphy’s] proposal is a big step forward for NJ to help close the wealth gap & address racial disparities that have left white families 10 times wealthier than black families in the US,” Booker wrote in a tweet. “Let’s get this done in NJ & continue our fight for baby bonds on the federal level.”

While Booker’s proposal gained some coverage during his presidential campaign, the issue has not gained much traction in either chamber. And with a reauthorization of the Higher Education Act unlikely for some time, a federal proposal for these types of bonds may be far off.

Similar savings accounts have been utilized at the state level, but have not had the same sort of flexibility or universality as the New Jersey proposal. 

For example, the most rigorous experiment is taking place in Oklahoma, where the Ford Foundation provided about 1,350 babies with $1,000 each in state-owned 529 college savings accounts in 2007. Participants would also be eligible for additional funding through a savings match if they open their own Oklahoma College Savings Plan based on income thresholds and annual deposits.

Maine also has a savings program funded by the Alfond Scholarship Foundation, a legacy gift from late philanthropist Harold Alfond to benefit future generations of Maine children which is capped at a total of $500 and has some additional restrictions to how the funds can be used.

States are still trying to sort through their amended budgeting cycle in the wake of COVID-19, and higher education has been especially susceptible to cuts. Meanwhile, Congress continues to negotiate its latest aid package with additional state and higher education funding being discussed.


Publication Date: 8/27/2020

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