College savings is a focus in Washington right now. I’m in the thick of Congress’ work to improve the Section 529 college savings plans that are popular in Iowa and across the country.
These plans allow a parent or grandparent to start saving money in an account run by each state for a child, grandchild or even the child of family friend. The state contracts with an investment firm to get the most bang for the buck. When it’s time for college, the savings is tax-free when used for education. Sometimes the savings is even deductible on the state level.
With Iowa’s plan, called College Savings Iowa, you can set up an account with $25 and contribute as little as $25 at a time. You don't have to contribute each month or even each year.
I’ve heard from parents and grandparents who open a plan on the birth of their child or grandchild. Iowa’s treasurer spreads the word with a sweepstakes with seed money for a local child.
That kind of work pays off. Nationwide, there are more than 12 million accounts open and nearly $250 billion invested in these plans. For College Savings Iowa, $17,878 is the average account balance, and $133 is the average amount contributed via automatic payments. More than $3 billion is invested.
The benefits add up. A family that saves $23,400 over 18 years -- or $25 a week -- could have as much as $42,000 to use for college. If the same family has to borrow $42,000, they could end up repaying almost $60,000.
Despite the success, the savings plans came under fire from the President as benefiting high income families who don’t need the savings, but various studies and statistics suggest that 529 plans are largely held by middle income families.
After opposition from Congress and families, the President backed off. Since I had a history of improving these plans, I took up the cause again, sponsoring bipartisan legislation that just came out of committee with unanimous support. My bill has three main provisions. One, it recognizes that in today’s world, a computer is just as much a necessary educational expense as a required class textbook. As such, this bill allows 529 funds to purchase a computer on the same tax-favorable basis as other required materials. Second, it eliminates an unnecessary rule that increases paperwork and costs on plan administrators. Third, it provides tax and penalty relief in instances where a student may have to withdraw from school for illness or other reasons. This allows a family to more easily pay for the student’s education should he or she be able to return to college or to use it for another family member.
The House of Representatives passed a companion bill with an overwhelming vote. The full Senate should do the same as soon as possible. A college education is something many families want for their children, and something policy out of Washington should support.