Supporting Smart Saving for College | Commentary
The value of a higher education is undeniable — but its sticker price is undeniably too high. Over the past decade, college costs have risen nearly 51 percent. For a family, figuring out how to pay can be quite taxing. Many families rely on financial aid to combat costs, assuming that assistance will come in the form of scholarships and grants that do not have to be repaid. In practice, however, more than half of federal financial aid comes in the form of loans that not only must be repaid but also incur interest.
A recent survey by Princeton Review found that 38 percent of students listed “level of debt incurred to pay for the degree” as their primary concern when deciding where to apply to college. It’s understandable why: Student loan debt in the U.S. has topped $1 trillion. Almost 90 percent of survey respondents rated financial aid as “very” necessary to pay for college.
As a strategy to offset the need for loans and keep families from getting saddled with debt, Section 529 college savings and prepaid tuition plans are a manageable and affordable alternative, designed to encourage early saving for future higher-education expenses. In 2012, American families invested a record $190 billion in 529 plans, according to data collected by the College Savings Plans Network.
More and more families are relying on 529 plans to reduce the amount of loan debt they take on. Today, national 529 College Savings Day, is a good time to consider how our congressional leaders can help further support this valuable vehicle for college savings and ensure that 529 programs nationwide remain as effective and versatile as possible. A bill recently reintroduced in the 113th Congress — the Savings Enhancement for Education in College Act (HR 529) — seeks to do just that.
Introduced by Rep. Lynn Jenkins, R-Kan., and Rep. Ron Kind, D-Wis., HR 529 would include 529 plan contributions in the Saver’s tax credit and provide employers with an incentive to contribute to the 529 plans of their employees.
The Saver’s credit allows a nonrefundable tax credit to the contributor of up to $1,000 for single filers or $2,000 for joint filers. The eligibility for this credit is limited to those with incomes at or below $29,500 single/$59,000 joint for 2013. Research shows that children from moderate-income families who have a college savings account of any size are more likely to attend college and are more likely to complete college than similar children without any dedicated college savings. Extending the current Saver’s credit to college savings will encourage moderate-income families to save for college.
This bill also creates an incentive for employers to help employees save for college for themselves and/or their families by allowing employers to match employees’ 529 plan contributions up to $600 per year.
No one should be denied access to higher education because they cannot afford it. A 529 plan is a powerful tool for helping families cope with the rising cost of college — the improvements in this bill will help put a college degree within reach of more children. We encourage our congressional leaders to support HR 529. With the enhancements HR 529 will afford, 529 plans can help students and families defray college expenses and burgeoning student loan debt, ensuring that today’s students get the education they need to become tomorrow’s leaders.
Michael L. Fitzgerald is chairman of the College Savings Plans Network and treasurer of the state of Iowa.