California's 529 college-savings plan was rated one of the best in the country Tuesday by mutual-fund researcher Morningstar Inc.
The state's ScholarShare plan was upgraded to a "silver" rating from "bronze" last year, making it one of the nine highest-rated of the 64 that Morningstar reviewed.
The research firm cited ScholarShare's strong investment lineup and an upcoming fee reduction. California is scheduled next month to drop a 0.05% administrative fee for all index-based "passive" portfolios, according to Morningstar.
That would make ScholarShare's low fees even lower. And unlike some 529 plans, which carry bookkeeping or minimum-balance charges, California has no hidden fees, according to the report.
Low fees and good college-savings plans are, of course, crucial in an era of rising student-loan debt.
"Fees are really what matter, and with this plan there are very few, if any, plans in the country that will be this low," Morningstar analyst Janet Yang said of ScholarShare's passive funds.
Morningstar deemed plans from four states worthy of gold status (Alaska, Maryland, Nevada and Utah). In addition to California, four plans got silver ratings (Arkansas, Michigan, Ohio and Virginia). Some states have more than one plan, so check the exact name of the plan to see if it's on Morningstar's list.
Only four of the 64 plans were labeled "negative," while 23 got "bronze" and 28 were "neutral."
California's plan also got high marks for its actively managed component, with fees that are "on the lower side" and investments from "largely best-of-breed managers."
Morningstar debated whether to give the California plan a gold rating, Yang said.
It ultimately decided against it. Morningstar doesn't analyze some of the firm's active funds.
Also, financial firm TIAA-CREF has only managed California's plan since 2011. The four gold plans have been in place much longer.