As college loan debt continues to rise around the country, so too does the urgency for Congress to take action to enhance the benefits of 529 College Savings Plans. While today—dubbed “National 529 College Savings Day”—celebrates the important role they play in helping American student access higher education, much more can be done to make the plans accessible to more Americans.
Congress is currently working on legislation to make 529 plans more flexible—by allowing college students to use 529 funds for computers and other school-related technology and electronic equipment. The bill passed the House with a strong bipartisan vote, 401-20, and a companion bill unanimously passed the Senate Finance Committee.
These changes will go a long way in encouraging more American families to save with 529 plans. But Congress can do more.
The impact of 529 plans on financial aid is also an obstacle to participation in college savings plans. Currently, 529 plans are factored into eligibility for college financial aid. This can discourage parents from creating savings accounts for their children. Given rising tuition costs, working families with modest means should not be penalized for putting aside hard-earned dollars as they plan for future higher education costs.
There are already too many barriers that discourage families—especially low- and moderate-income families—from saving money for college. According to studies, many working class parents have little money left over at the end of the month or face the burden of overdue bills and emergency expenses. Some parents face unemployment, don’t have access to bank accounts or don’t have the financial knowledge to start a 529 savings plan.
To encourage greater participation in 529 College Savings Plans, Congress should act to exempt up to $35,000 of the assets in all 529 accounts held by parents from counting as parental assets in college financial aid eligibility determinations.
There is little question that 529 plans have opened the door for millions of students to attend college. The number of 529 plans has increased nearly five-fold over the last decade—to more than 12 million—and American families now have nearly $250 billion invested in 529 plans. The average size of a 529 account is a little more than $20,000—an all-time high. And research shows that children with dedicated 529 plans are up to seven times more likely to attend a four-year college.
Unfortunately, too many families still do not have 529 plans. A recent survey by the financial services firm Edward Jones revealed 66 percent of Americans don’t know what a 529 plan is. Another survey by Sallie Mae showed that only 27 percent of families saving for college utilize 529 plans. That number needs to grow.
State treasurers and other state officials, who administer 529 plans, have already made great strides in encouraging participation in college savings plans by families of all incomes. In fact, in some states like Kansas and Tennessee, state officials now offer matching programs to encourage more working class families to save for college. These new initiatives, coupled with the proposed Congressional changes to 529 plans, will result in even larger increases in participation in college savings programs.
We need Congress to help build on this effort.
Boozer is the state treasurer of Alabama, vice-chair of the College Savings Plans Network and a member of the National Association of State Treasurers. Lochner is the chair of the College Savings Plans Network and the director of the Washington Guaranteed Education Tuition, the 529 Plan of the State of Washington.