In 1991, the College Savings Plans Network (CSPN) was formed as an affiliate to the National Association of State Treasurers (NAST). Established to make higher education more attainable, the Network serves as a clearinghouse for information among state-administered college savings programs. Additionally, CSPN monitors federal activities and promotes legislation that will positively affect Section 529 plans.
CSPN provides a valuable networking opportunity for all state officials to gather and share their unique innovations and experiences in an effort to improve 529 plans and in turn, help the families of this nation attain their educational goals.
Membership in the College Savings Plans Network is open to all elected officials and senior staff in the executive, legislative and administrative branches of state government with responsibilities in the college savings area. Private sector membership is available, as well. Members of CSPN meet annually to share best practices, review technical aspects of the different program types, and examine federal activities relating to college savings plans.
The phenomenal expansion in the number of programs and the interest in college savings plans has brought incredible growth to the College Savings Plans Network. Participation in Network events and forums has continued to increase as the Network strives to enrich the communication between its members and the public.
History of 529 Plans
Over the past 40 years, college tuition rates have been consistently increasing at two to three times the rate of inflation each year. During this same period of time, federal financial aid funding has shifted away from student grants to providing access to guaranteed student loans. Today, nearly 60% of all federal financial aid is in the form of loans, substantially increasing the number of college graduates faced with the burden of repaying enormous student loan debt upon entering the workforce. In fact, today more than 43 million Americans hold student loan debt in excess of $1.6 trillion, with millions of debtors in default.
Concerned by the mounting financial strain placed on young professionals, states began to develop innovative programs designed to help families and students save for their college education. The original plans were created by states such as Florida, Michigan, Ohio and Wyoming in the late 1980’s. Since that time, over 16 million families have saved more than $400 billion in what are commonly referred to as Section 529 Plans.
Although states created Section 529 plans more than twenty years ago to encourage their citizens to save for college, the movement started to gain momentum in 1994 with Michigan’s victory in the Sixth Circuit Court of Appeals. As a result of that court decision, the Michigan Education Trust Prepaid Tuition Plan was declared to be Tax-exempt as an instrumentality of the state.
Following the court decision, the Internal Revenue Service declared its intention to contest the tax status of each plan on a case-by-case basis, which prompted the states to increase their efforts in Congress to secure federal tax advantages to promote college savings. In 1996, U.S. Senator Bob Graham of Florida, where a prepaid plan was well established, and U.S. Senator Mitch McConnell of Kentucky, which had the first college investment savings trust program, led a bipartisan effort to provide federal tax relief for all plans, resulting in the creation of Section 529 of the Internal Revenue Code (IRC).
The development of IRC Section 529 and the resulting federal tax benefits (tax deferred treatment of the earnings when used for higher education) spurred the development of college-savings plans nationwide. From 1996 to 2000, 30 states developed and launched a Section 529 plan, dramatically increasing the opportunities for families to begin to save for the rising costs of higher education.
The enactment of the Economic Growth and Tax Relief Reconciliation Act on June 7, 2001, provided further congressional support for Section 529 plan. The 2001 tax act completely exempted the earnings of Section 529 plans from federal taxation, further solidifying the partnership between the federal government and the states in the promotion of college savings, rather than having families rely on loans for their children’s education.
In their work to promote saving for college, states have provided leadership and innovation to improve educational and economic opportunities for all Americans. Coming in an era of concern over corporate governance activities and increased governmental regulations in the markets, Section 529 plans are a shining example of what can be achieved by a public/private partnership administered through a state mandate.
In general, the states have structured investment options in Section 529 plans to the benefit of participants who are not experienced investors. For example, most savings plans offer age-based investment options that automatically re-balance assets based on the age of the beneficiary, making it very easy for families to save. Additionally, the states’ role in selecting financial firms or investment managers through competitive procurement assures participants that they receive better pricing and account servicing than they could obtain independently.
Today, 49 states and the District of Columbia offer Section 529 plans to their residents. The role of the states is even more vital as new investment options and program enhancements are being developed. States continue to provide quality assurance and an added level of fiscal oversight and control, ensuring that any new option or enhancement truly is beneficial to the families trying to save and adhering to the public policy goals established by the state.
Section 529 plans have been successful in motivating parents to invest and save for a child’s higher education expenses. For millions of American children, the prospect of a brighter future has been made a reality through the efforts of states and financial service firms who have developed these unique partnerships.
About The National Association of State Treasurers (NAST)
The National Association of State Treasurers (NAST), founded in 1976, is a professional, nonpartisan organization that provides a forum for the exchange of information and significant developments in state finance. Membership is composed of all state treasurers, or state finance officials with comparable responsibilities, from the United States, its commonwealths, territories, and the District of Columbia. The private sector is represented through the Corporate Affiliate program, started in 1986.
The National Association of State Treasurers is an organization of state financial leaders, encourages the highest ethical standards, promotes education and the exchange of ideas, builds professional relationships, develops standards of excellence and influences public policy for the benefit of the citizens of the states.
For more information, visit the NAST Website.