Education payments leaders share advice on minimizing paper checks by digitizing 529 disbursements

Dave O’Brien
Dave O’Brien
is Program Director, EDU Partnerships at Flywire

More families are saving for college – and many are using 529 plans as their preferred savings vehicle.

That’s a great thing. 529 plans offer tax-incentivized ways to pay for many different types of education expenses. But as their popularity grows, it’s also clear that the processes to access and use the funds are digitally far behind. Right now, disbursement is manually done via paper checks and payment processing, a time consuming labyrinth that affects the plan providers, the institutions and the families themselves.

The lack of digitization and automation only presents more challenges as accounts grow in number and total assets. As such, plan providers spend countless hours and money cutting checks and managing distribution requests. Institutions often receive batches of 529 checks in tightly packed bins and commence a painstakingly manual process of processing those payments. And families sit in the middle – waiting for their 529 disbursement to be applied to their education bill.

Why is the 529 disbursement process still so manual?

College Savings plans are still a relatively new savings vehicle. The industry is playing catch-up with technology but plan managers recognize the need to start eradicating paper volume and manual processes in order to continue to drive value and meet the expectations of plan participants investing in their student’s future. I recently dug into the 529 disbursement digitization opportunity with Tim Riley, Assistant Comptroller and Bursar at Purdue University, and Paul Curley, Director of 529 & ABLE Research at ISS Market Intelligence. We had a candid conversation during PDG’s College & University Bursars SFS Virtual Conference, sharing advice and learnings in the industry and how to make the process more efficient. Listen to the full webcast on automated 529 plan distribution here.

While many areas of education payments are digitized, today’s 529 disbursements remain overly analog. The typical process looks like this:

  1. Families make a withdrawal request from their 529 plan provider.

  2. Funds typically get sent via paper check through the postal service or via expensive overnight couriers, rather than direct ACH.

  3. When institutions receive the checks, they manually sort, open, post, balance, remote deposit and shred them in accordance with regulations.

Some 529 plans have started to deliver 529 disbursements to select schools via electronic funds transfer. But, a lack of standardization results in frequent inefficiency. Either way, without technology and innovation, the end-to-end process is time-consuming, inefficient and error-prone due to its manual nature. It’s not unheard of for checks to be sent to the wrong institution or payments to be missed because of insufficient student account information. In fact, participants live-polled on the recent webcast named processing checks and delivery and identification errors as the major pain points with paper check disbursements.

Consider how these problems magnify at scale. There are now 16 million 529 accounts nationwide, and their use has climbed to 28.9% in 2021 compared with 26.5% in 2019, according to data from a comprehensive ISS MI 529 industry analysis conducted annually for the past 11 years.

“The assets are growing and the number of accounts are growing,” Curley said.

Universities and plan providers benefit from 529 disbursement digitization

The opportunity presented by 529 disbursement digitization is one Purdue University, which consistently ranks as one of the top public universities in the U.S., is keen to embrace. A leader in tuition innovation on a number of levels, for 11 years the Indiana-based university has been able to freeze its tuition, an act in at least some part owed to operational efficiencies gained through technology. When it looked at the 7% of payments it still receives by check, the vast majority, at 75%, were 529 disbursements.

To help alleviate this situation, Purdue turned to Flywire. By using Flywire’s 529 Disbursement solution, the institution is now able to digitize and automate the process. In a matter of months, Purdue is already receiving hundreds of 529 disbursements electronically. This adds to the time and resource efficiencies it’s already realizing with its other 90% of electronic tuition payments.

There are many advantages to digitizing the disbursement process for plan providers as well. For instance, the time and money saved can be spent on better marketing the savings tools, and even looking at lowering their cost, according to Curley. What’s more, a better experience increases the chances the family will use or recommend the plan provider – as how easy it was for a family to utilize plan funds weighs into their decision on whether to use it as a savings vehicle again.

Take the pain out of the 529 disbursement process

Flywire’s 529 Disbursement solution automates the disbursement process, and allows 529 account holders to make electronic disbursements directly to eligible education institutions. Flywire’s public API directly connects the network of 529 plan providers and the education institutions, allowing account holders to make electronic disbursements directly to institutions. Flywire’s platform performs the data exchange, bundling and digitizing payments to schools in a way they’re accustomed to receive (including ID number, name, etc.). This, in turn, expedites payment delivery.

Taking the pain out of managing the 529 payments process helps institutions and enables the plans to do the job the families had in mind - helping to easily pay for school. That all does something very important as it makes the business side of Purdue a simple and intuitive experience, Riley said, “so students can concentrate on their academic success.”