If reunification is determined to be impossible, the state goes to court to sever parental rights. This determination normally takes a year plus, and usually means the parents have checked out or are no longer trying to resolve the issues. Only once parental rights are severed is the child considered "legally free", and is eligible to be adopted into another family. In the ideal case, this is the family they were staying with before parental rights were severed, but not necessarily.
I haven't looked into the details of this article, but I assume these funds will be used for kids that have had parental rights severed, and were either adopted or "age out" of the foster care system.
Once in foster care, most kids are traumatized. Once parental rights are severed, it is incredibly difficult for parents to "re-adopt" their kid. I sure hope no parents are so short sighted to put their child through hell to reduce the cost of college.