Q: What is College Savings Month?
A: College Savings Month is designed to raise awareness and encourage Americans to save for educational expenses. It’s become increasingly important to save for college as increases in college tuition continue to exceed the rate of inflation, public assistance to students and family income. By saving for our children’s higher education, we can help ensure that they have the opportunity to receive a quality education without being saddled by a mountain of debt.
Q: Has anything been done to ease the price of tuition?
A: As Chairman of the Senate Finance Committee, I worked to remove the limitation on the deductibility of student loan interest. Successfully enacted, this tax tool helps students and parents with the high price of college by decreasing their tax burden.
I’ve also been looking at how hundreds of colleges, which enjoy tax-exempt status, have grown their endowments to enormous amounts while in many cases continuing to raise tuition every year at very high rates. Tax-exempt status comes with a public obligation. Universities and colleges exist to educate – that’s their public good. My oversight is an effort to ensure that these big, tax-free endowments are creating more opportunities for education. As a result of my oversight, a number of leading colleges and universities have now agreed to provide more of the income of their endowments as significant tuition relief for middle and lower-income students.
Q: What’s a good way to save for college?
A: It’s important to provide students and parents with options to save for college. Families need a simple, safe, affordable and dedicated way to save for college tuition. 529 college savings plans provide an excellent way for families to save. These plans allow parents, grandparents, and even the students themselves to make contributions to state-sponsored college savings plans. These contributions earn interest tax-free. As chairman of the Senate Committee on Finance in 2001, I worked to build upon the federal tax advantages offered by 529 college savings plans through the Economic Growth and Tax Relief Reconciliation Act by allowing tax-free distributions as long as the withdrawals are used for college expenses. I also successfully fought to make tax-free withdrawals from 529 college savings plans permanent as part of the Pension Protection Act of 2006. Iowa’s 529 program, College Savings Iowa, with more than $2 billion invested, is one of the five best 529 plans in the nation, according to Money Magazine. For more detailed information on the 13 different plans in College Savings Iowa, visit www.collegesavingsiowa.com.
Another way to save for college is through a tax-deferred savings vehicle called an educational savings account. During the 2001 tax bill, I worked to raise the annual limit on contributions to education savings accounts from $500 to $2,000. Contributions to these accounts are allowed to grow tax-free. Contributions depend on your adjusted gross income for the year. Distributions from an educational savings account are tax-free, but only if payments are for qualified education expenses.