As college seniors prepare to graduate, they and their families are faced with higher tuition bills and student debt burdens, even in a fragile economy. In 2008, nearly 90% of low and middle income students who applied for federal aid graduated with average student loan debt of $25,000.
Congress recently passed and President Obama signed legislation that overhauled student lending and increased federal Pell Grants. These are important steps, but more can be done to help families afford the rising cost of college, including facilitating college savings to help earn a diploma while accumulating less debt.
On May 13th, New America's College Savings Initiative held an event in tandem with the Congressional Savings and Ownership Caucus to discuss ways for federal policymakers to encourage saving for postsecondary eduation. This event also coincided with the release of a new paper providing a menu of policy options to make college savings plans more inclusive and effective.
The Caucus was represented by Ben Stoltzfoos, Legislative Assistant for Rep. Joe Pitts (R-PA). Ben kicked off the event with comments on the need for the US to regain its global lead in education and the Congressman's committment to doing so. Mr. Stoltzfoos also discussed the Help Kids Save for College Act of 2009 (HR 2500), which Congressman Pitts introduced last year. HR 2500 would allow and employer to match their employees' savings in a 529 college savings plan, dollar for dollar, up to $1,000 per year, with the matching funds being non-taxable income to the employee. This, policymakers hope, would provide an opportunity in the workplace for employees to plan for a child's college education, or save for their own retraining.
Next, Joan Marshall -- Chair of the College Savings Plans Network -- gave an overview of the state-level perspective on college savings policy. As 529 college savings plans operated on the state level, there are many different state policy innovations that are currently being implemented that help low- and middle-income families save for postsecondary education. This includes matching programs, providing college savings accounts at birth, and providing state tax incentives for families saving in 529 plans. Marshall then went on to comment on ways for the federal government to make it easier on families saving for college -- including making 529s eligible for the Saver's credit and exempting 529 savings and other assets from complicated financial aid calculations, among other solutions.
Finally, Jackie Williams -- Director of the College Savings Initiative at New America -- provided a number of ways that federal policymakers can encourage and enhance the savings of low- and middle-income families. Williams began by detailing new research out of the Center for Social Development at Washington University in St. Louis, indicating that controlling for other factors—including household income and children’s academic achievement—children in households with savings dedicated for college education are four times more likely to attend college. In addition, when children have a savings account in their name, they are seven times more likely to attend college. She then detailed several federal policy options, including removing disincentives to save from financial aid and public assistance calculations, providing incentives and opportunities through matching programs and accounts-at-birth or kindergarten, opening 529s on federal tax forms, and the aforementioned employer tax credit.
