President’s College Plan: Well Intentioned with Misguided Funding Strategy

Betty Lochner
Chair of the College Savings Plan Network & Director of Washington State’s Guaranteed Education Tuition (GET) Program
January 22, 2015

During Tuesday night’s State of the Union address President Barack Obama proposed some philosophical changes in the road to higher education, including a strategy that provides free community college for all Americans. The idea of creating greater access to higher education to strengthen our country’s economy, workforce and the number of career opportunities for our citizens is commendable and inspiring.

I think that as Americans, no matter your political affiliation, we can all agree that a better educated citizen-base is essential to helping our country prosper with more engaged, innovative and open-minded people that have the resources to purchase, invest, volunteer and create.

The biggest concern with the President’s plan is that it comes at the expense of one of few tax breaks for middle class families. The President’s proposal calls for the removal of the ability for Americans to use the money earned in their 529 college savings account on a tax-free basis. The rationale behind this plan is that additional income taxes collected from students could be one of the mechanisms for funding the free community college proposal.

With 12 million accounts open, 529 college savings plans are helping American families save for future higher education costs. Research shows children with a college savings account are six to seven times more likely to attend a four-year college, compared to children with no dedicated account.

Taxing college savings is detrimental and will have a chilling and resounding effect on the future of families’ investments in their children’s higher education. Even more families will be left to rely on student loan debt, which is currently at $1.3 trillion; nearly five times the amount ($250 billion) American families have saved in 529 plans. Loans and tax credits alone are not the solution to making college more affordable, so we should be doing all we can to encourage, not stifle, savings.

Even if the President’s plan for free community college is implemented, there will still be a huge demand and need for students with bachelor’s, master’s and doctorate degrees. Further, students with an associate’s degree may also want to continue their education with a professional certificate at a technical or trade school. All of these advanced degrees will continue to be a significant financial investment that families will need to save for, especially during a time when the cost of a college degree has increased 12 fold over the past 30 years.

The concept of saving has and will continue to be the most critical step in creating access to higher education and making it more affordable to middle class families. If you agree that saving for college is important, I encourage you to reach out to your Representative and Senators in Washington D.C. to let them know how you feel about these proposed changes so that they can advocate on your behalf.