Opinion: College could be harder to afford with 529s taking a hit


Jennifer Hutchinson is a sophomore political science major. Contact her at [email protected].

Jennifer Hutchison

After President Barack Obama’s recent debut of his free community college proposal, it seems he could have more education cost reform coming our way. This latest idea, however, is not going over as smoothly. Obama wants to alter 529 savings plans, suggesting that the most attractive benefit be eliminated—withdrawing funds without any taxation. 529 plans weren’t very popular until 2001, when President George W. Bush decided to cut taxes on withdrawals from such accounts.

The tax cuts were put in place as a way to encourage families to invest in these types accounts, with the policy that the money would be strictly spent on education. Obama is now claiming, however, that the tax-free policy is only benefiting the most affluent population (those making more than $200,000), because they are the only ones who can afford to save the money and would be paying less taxes in the long run compared to the rest of Americans.

Mary Morris, chairwoman of the College Savings Foundation, a nonprofit organization that supports the programs, says otherwise, according to The New York Times. Morris said that middle-class families reaped great benefits from 529s, and that if only the wealthiest were benefiting from these savings plans, she would expect average account balances and monthly contributions to be far higher.

To be specific, according to Strategic Insight, the current average value of a 529 account is only about $19,774, while the average monthly contribution to the plan is about $175. In addition, the president and his administration claim that 70 percent of these accounts are held by people making over $200,000. This number is distorted. Morris says that in fact, 70 percent of the accounts held are with Americans who make under $150,000. Also, the president’s administration ignores that there are a growing number of people who are investing in these accounts who make fewer than six figures.

Obama claims that taxation of 529s would go into redirecting and recirculating money to the middle class. However, this just sounds like a disguised redistribution of income to me. Furthermore, this proposal seems like anything but pro-middle class. Not only would taxation of these plans discourage families to save for education, which is practically mandatory during this time, but also since the withdrawals from the accounts would be recognized on families’ tax returns, it would also likely reduce how much they receive in financial aid.

529 plans are an effective way for parents to save for their children’s education. With the cost of college tuition constantly on the rise, these plans allow for families to somewhat afford higher education costs, and try to reduce the $1 trillion of student debt in America. Overall, however, this seems like a moot point, as it will not pass through the newly Republican-controlled Congress.

Contact Jennifer Hutchinson at [email protected]