Popular Posts

Tuesday, March 21, 2017

College Savings Accounts Are Popular But Missing Their Marks

Few families use them -- and even fewer put enough money away to matter. Advocates, however, say the programs are too young to judge.

In the spring of 2014, Ed FitzGerald visited a Cleveland elementary school to announce a new and highly ambitious education program: free college savings accounts with cash subsidies for every kindergartner in Cuyahoga County, Ohio. At the time, FitzGerald was the county executive and the Democratic nominee for governor. A similar savings account program had been introduced a few years earlier in San Francisco, but that was an experiment limited to public schools. FitzGerald’s initiative included children in private and parochial schools as well. With 10,500 accounts in its first year, it promised to be the largest effort of its kind in the country.

At a press conference, FitzGerald cited the increasing cost of higher education and low college attendance rates as reasons for the new program. Past efforts by the state and federal governments to encourage saving for college, through so-called 529 investment vehicles, had largely failed. Research from the Board of Governors of the Federal Reserve System found that in 2013, these 529s achieved a meager 2.5 percent participation rate among eligible families. For households in the bottom half of the income distribution, participation was below 1 percent.

The savings plans, named for the 529 section of the federal tax code created by Congress in 1996, built upon an idea pioneered by Michigan in the late 1980s. The idea was that government could help parents pay for college by offering them tax breaks on savings accounts for higher education. The money parents withdrew from the accounts to pay for education expenses and the interest generated by the invested principal were tax exempt.

More

1 comment:

  1. We started college savings via 529 for both kids...oldest went through the entire amount at a Community College in 2 years. Youngest will do the same. Very hard as a young parent to sock a couple of hundred dollars (per child) to build up that 529 - especially while they are infants and need additional or unexpected care, which requires $$$$$.

    We did the best we could with 529 and very happy is was available. Lessened the burden on the kids, at least 2 years worth. They'll do just fine with loans, just like the rest of us did back in the 1900's!!

    ReplyDelete

Note: Only a member of this blog may post a comment.