How does Cal KIDS work? Free college funds for Californians

It may be hard to believe, but California’s cherished university system was tuition-free for state residents until the 1970s. Now, the average fee in the UC system is more than $13,000 per year, and fees, lodging, meals, and other expenses are estimated at $25,000 to that total.

The increase in costs is partly due to the declining percentage of the UC budget that the state covers. More recently, however, state officials have attempted to make higher education affordable for more Californians by pumping larger budgets into UC and Cal State University and making community colleges fee-free for low-income residents.

And now the state is launching CalKIDS, a taxpayer-funded scholarship program designed to help kids start saving for college from the day they are born. The program automatically grants up to $100 to every child born in California on or after July 1 and up to $1,500 automatically to every eligible low-income student.

The tax-free money is invested in a mutual fund managed by ScholarShare, the state’s college savings plan, and can be spent on tuition, books, and other education-related expenses. Withdrawals for other purposes would be taxable.

The point, state officials say, is to encourage more kids to continue their studies after high school.

“Research shows that children with a college savings account are three times more likely to enroll in college and nearly four times more likely to graduate than children without savings,” states the CalKIDS program information guide. “Investing in a CalKIDS account can be a stepping stone to creating a new saving behavior for families and serve as tangible evidence of the government’s commitment to helping children achieve the goal of higher education.”

Just to be clear, CalKIDS says it’s a scholarship program, and unlike 529 savings plans that help parents and students set aside money for college, you can’t add money to your child’s CalKIDS account. You need a 529 for that.

Who is Eligible? How does it work?

The program follows the Child Development Accounts model developed by the Center for Social Development at Washington University in St. Louis, which calls for universal eligibility for newborns in the state. So if you live in California and are having a baby on or after July 1st, the program will automatically open a CalKIDS account for your child with a $25 grant. There is no citizenship requirement.

You must register with CalKIDS online to gain access to the account, but this comes with its own incentive: an additional $25 grant, bringing your child’s total to $50. You can do that on the CalKIDS website; You must provide the local registration number from your child’s birth certificate or the unique code that CalKIDS sends to all new parents, along with your child’s date of birth and country of birth.

And if you set up a 529 savings plan with ScholarShare and link it to your child’s CalKIDS account, CalKIDS will deposit an additional $50, bringing your child’s total to $100. You can link accounts through the CalKIDS website.

What about older children?

Beginning in September, low-income children entering first grade in California public schools will automatically receive a $500 CalKIDS account. Children living with foster parents receive an additional $500; Those identified as homeless will receive an additional $500.

Similarly, public school students who were in grades 1 through 12 last year will be automatically enrolled, with the same scholarships available. According to CalKIDS, students are awarded scholarships if they meet any of the following criteria:

  • You are eligible for free or discounted meals through the National School Lunch Program.
  • Receive CalFresh, CalWORKS, or meal distribution benefits with a reservation.
  • You are in a government-approved English language program for non-native speakers.
  • They live in a migrant household and work in agriculture, dairy farming, fishing or the timber industry.
  • They are “regarded by their school as foster children or homeless”.

Do you have to do something?

To maximize participation, CalKIDS collects information from the California Department of Health and Human Services on state-born babies and from the California Department of Education on students who meet eligibility criteria. This allows the program to set up accounts without parental involvement.

Be forewarned – there will be a slight delay. According to CalKIDS, it takes up to six months after a baby is born to create the account. And while student eligibility is determined in October, their accounts are not created until the following spring or summer.

And remember, in order to access an account, you or your child must register on the CalKIDS website.

If you do not want the scholarship for any reason, you must submit an opt-out form to the program. English and Spanish versions can be found on the CalKIDS website.

What happens to the money?

According to the program, the CalKIDS grants are invested in a so-called target date fund, which is a mix of more and less risky investments. Specifically, it will be included in the relevant ScholarShare 529 Plan Passive Enrollment Year Portfolio.

The closer your child gets to high school, the more investments will shift to less risky assets. That way, the account is less likely to fall sharply in value if the stock market is about to crash when you start making withdrawals.

What can the money be spent on?

That is governed by federal law. Qualifying expenses include tuition and fees paid to colleges, trade schools, and other educational institutions whose “principal function is the presentation of formal instructions,” as well as “books, materials, and equipment required for instructional courses at such educational institution.”

If scholarship funds are used for nonqualifying expenses, federal tax law requires that amount to be reported as regular, taxable income.

About the Times Utility Journalism Team

This article is from the Times’ Utility Journalism team. Our mission is to be essential to the lives of people in Southern California by publishing information that solves problems, answers questions, and aids in decision making. We serve audiences in and around Los Angeles – including current Times subscribers and diverse communities whose needs have not been met by our coverage in the past.

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