Texas puts unusual twist on board's college bond issue to aid poor students.

DALLAS -- In an unusual college savings program that could be expanded throughout Texas, a state representative and other officials hope to obtain a $1,000 bond for every first grade student in a poor county near the Rio Grande Valley.

"It is a unique idea," said Albert Bacarisse, executive director of the Texas Bond Review Board and a member of the Texas College Opportunity Act committee. "If it works, we could expand it around the state."

Under the program, the Texas Veterans Land Board will issue about $6 million or more of capital appreciation college savings bonds in mid-October as part of a $367 million debt package for veterans housing assistance.

Although the land board has issued these types of bonds four times since 1989, when enabling legislation was passed, part of the program will have a different twist this time.

Overall, the bonds will be marketed to residents throughout the state by the issue's senior manager, Smith Barhey Inc., but the program will also receive a special promotion in Duval County, Tex., where state and community leaders are lining up bonds that would mature in five to 20 years for about 200 first grade students.

"It is one of the counties that is in the economically depressed areas of the state, where a lot of students don't get the opportunity to get to college," Bacarisse said.

To provide the opportunity, parents who can afford the bonds are being encouraged to buy them to start a college savings fund for their First grader. In addition, some individuals would either guarantee bank loans for low-income parents to buy their children bonds or donate them outright. Texas state Rep. Richard Raymond, D-Benavides, who initiated the program at a constituent's suggestion, said he hopes the bonds would serve as a catalyst and prompt more parents to start savings for their children's education.

He said only about 10 of the 73 students in his 1979 graduating class from Benavides High School went to college, largely because they could not afford the education.

So far, he said several individuals have agreed to guarantee bonds for the children. In the next few weeks before the Oct. 12 bond sale pricing, more business and professional sponsors will be contacted to help students in a three-city area -- Benavides, Freer, and San Diego.

Raymond said he thinks the program will be successful and that a bond can be arranged for every first grade student in the communities that are largely Hispanic and have double-digit unemployment. If it is, Bacarisse said the committee that was created as part of the Texas College Opportunity Act in 1989 will consider trying to implement the program in other areas of the state and use other state agencies to issue the bonds.

Under the act, he said the Texas Water Development Board and the Texas Higher Education Coordinating Board can issue the college savings bonds, and they could be tied to programs for lower income families.

In the past, some people criticized the program as benefiting primarily higher-income families. However, by using benefactors and loan guarantees the program could reach more lower-income and middle-income families. "It's not going to cost the taxpayers another nickel," Raymond said. "It's trying to take advantage of what exists."

While the college bond savings program would add about $65,000 to the cost of issuance for the veteran's bond package, the loan guarantees and the donations to help lowincome families would cost nothing more. Bruce Salzer, director of funds management, said he thinks the program for lower-income families will eventually be successful, although it may be too pushed to meet the deadline this time. However, he expects all bonds to be placed as they have in the past, "These are very popular issues," he said. "There are very few options that are as safe and in as small a denomination. They have a state rating, and they are priced as capital appreciation bonds." The Veterans Land Board expects that the bonds, which would mature in five to 20 years, will be priced from $280 for $1,000 face amount for a 20-year bond and $770 for $1,000 of a five-year bond. Senior manager Smith Barney will be mailing out about 80,000 brochures on the bonds in the near future, Salzer said. At this point, he said the Veterans Land Board deal is structured to include about $6 million of college savings bonds, although that could be changed later. The cap is $10 million.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER