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This past month, both the US Senate and House of Representatives introduced legislation to make enhancements to 529 College Savings Plans. On February 25, the House voted to approve the bill, by a vote of 401-20, and send it to the Senate.
These tax-free plans are used by millions of families to save for their children’s future higher education expenses. These plans have proven to help minimize or eliminate future student loan debt, while helping increase access to higher education.
This year, student loan debt reached an all-time high of $1.3 trillion, with the 2014 graduating class finishing college with an average of $30,000 in loans, per graduate. Of the 37 million people carrying student loan debt, one-third are over the age of 40 and almost 2 million people over the age of 60 are still paying off loans.
When Americans are saddled with student loan debt, they are not able to buy homes, cars and other products that boost our economy. They are not able to innovate by putting their ideas into action by starting a new business. They are also limited in their ability to invest in their future by saving for retirement and other long-term goals.
On the flip side, 12 million Americans have saved approximately $250 billion in 529 plans: less than a quarter the amount of student loan debt in our country. Many families have 529 success stories, like the following:
We were both teachers, and being a middle-class family, we needed to plan for our kids to go to college when the time came. Because of the ages of our three children, we knew that there would be 11 straight years of our kids in college, and two of those years would have two kids in college at the same time. Each paycheck, we deposited money in our college savings. We’re happy to say that our 11 years of college are over and our kids are debt-free thanks to our savings in the Ohio CollegeAdvantage 529 program.
-- James and Christine Beaver, Dayton, Ohio
Our sons are now 30 and 28, and both college graduates with NO debt due to the opportunities from the Ohio CollegeAdvantage 529 plan. When we began our family, we decided that we didn't want to have college debt for them in our later years and we didn’t want them to have their own college debt. At first, it was difficult to save, as time went on and our salaries grew, it became easier. We appreciated the ability to have our sons graduate from college without the worry of large loans!
-- Elizabeth Lolli, Middletown, Ohio
It is the goal of all state 529 plans to reverse this trend and to someday have college savings out-pace student loan debt. The only way we can do that is to continue to improve 529 plans by offering more incentives for families to save.
Enhancements like those that are part of the proposed legislation in the Senate (SB 335) and House (HR 529) help all Americans see and understand the value of saving through 529 plans. These companion bills specifically call for:
- Making computers a qualified expense;
- Allowing the re-contribution of qualified withdrawals refunded by a school to be re-deposited without negative tax implications;
- Updating accounting rules to eliminate distribution aggregation, which aids plan administrators.
Implementing common sense improvements to 529 plans so that more families see the benefits of saving will only help the overall health and well-being of our country over the long-haul. Simply put, when students graduate with little to no debt, they have the resources to innovate, purchase, invest, volunteer and create. Now is the time to pass this legislation that strengthens 529 plans.
Posted on February 26, 2015