Just last year, tuition and fees at four-year public colleges rose 6.5 percent. Unfortunately, this continues a decades-long trend of rising college costs, even during periods of economic unease and low inflation. Escalating prices have also coincided with stagnation in need-based financial aid availability, the result of which has been mounting levels of student debt for low and middle-income families. In this context, there has been greater reliance on savings, particularly through 529 college savings plans, in order to increase college affordability and reduce debt.
But there is also an emerging body of research linking savings to important educational and behavioral benefits, as well as college completion.
The Obama Administration has indicated that saving, broadly, will help lay a new and sustainable foundation for economic growth, and that saving for college in particular can help America regain its global education lead. How can college savings plans be reformed to help achieve these goals, particularly for low and moderate income families? What has the Obama Administration learned from its recent review of 529 plans? How are states, through their 529 plans, helping families combat the rising cost of higher education? And how are families actually saving for college, given the current economy?
Join the New America Foundation's College Savings Initiative this Thursday, November 5th, for a discussion of these questions and more, featuring Alan B. Krueger, Assistant Secretary for Economic Policy at the U.S. Treasury Department. This event will also feature commentary by Dan Ebersole, State Treasurer of Georgia, Margaret Clancy of the Center for Social Development at Washington University in St. Louis, and Scott Buchanan of Sallie Mae.
A live webcast of the event can be seen on the event page.
By Jackie Williams, College Savings Initiative
The state of Illinois recently passed a bill, SB 77, creating a state income tax credit for employers making matching contributions to their employees' 529 college prepaid and savings accounts. The credit is a 25% match of the employee contribution, not to exceed $500 per employee. The provision is effective for the current tax year and runs through December of 2020.
This is an important step forward to involve employers in helping employees save for their children's or even their own higher education expenses. Most of us don't learn about saving and investing until we begin fulltime employment. This is typically when we begin contributing to 401K accounts. So why not encourage greater savings discipline for college at the same time employees are investing for retirement?
Employers have the capacity to encourage better academic participation by making it easier for employees to contribute to savings plans. Offering payroll deduction and providing financial support in the form of matching contributions are two important ways that employers can support their workers. The workplace is often an important classroom for learning about saving and investing.
Recently, 529 college savings plans have come under criticism. Like many stakeholders in the economy, 529 plan owners have not been isolated from financial pain, and many critics have used recent market volatility and plan underperformance to call for reform. Others, however, have gone further and called for policymakers to abandon 529s in particular, and savings overall, as a plausible conduit to help families afford college. As New America's recently launched College Savings Initiative is charged with examining and improving 529 plans, we feel that it is important to respond to some of these arguments.
To their credit, many critics of these plans share our general goal -- to increase postsecondary access and affordability for low- and middle-income students. We simply differ over whether or not 529 plans provide a promising tool for helping students attend and complete college who could not otherwise afford to go.
Consider this: A recent Gallup survey from Sallie Mae indicates that, while 62% of parents are saving for college, only 32% of those making less than $35,000 have put any money aside for this purpose. Furthermore, half of those low-income families are saving even less (or in some cases not at all) in light of the recession. This is, quite obviously, cause for concern. But is encouraging savings -- and college savings plans as vehicles to do so -- really the answer? We believe so.
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Department of Ed Data Project Sparks Controversy
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More than 500 days after being placed on paid administrative leave, Matteo Fontana officially resigned from his position at the U.S. Department of Education in early September, according to a report yesterday in The Chronicle of Higher Education. The Department's political leaders are surely breathing a sigh of relief.
After all, over the past 17 months, they have come under heavy fire (including from us) for the way they have handled the case, which revolves around special shares of stock that Fontana received from a student loan company he was in charge of overseeing.
But if Department leaders think that Fontana's resignation brings this case to a close, they are kidding themselves. Serious questions remain about Fontana's actions and about the Department's response to them.
In April 2007, the Department placed Fontana, the then-general manager of the Financial Partners Division of the U.S. Department of Education's Federal Student Aid office, on paid leave after Higher Ed Watch revealed that he had held at least $100,000 worth of stock in the company Student Loan Xpress. It is clear that Fontana's purchase and subsequent sale of the stock represented a substantial conflict of interest -- he was, after all, responsible for overseeing the lenders and guaranty agencies that participate in the Federal Family Education Loan (FFEL) program.