If you went to college or are planning to go, you know that financing four years of higher education can be daunting. And while the luckiest among us have been able to use college funds to save money for school, new changes Congress made to 529 college savings plans could mean big repercussions for everybody.
Okay, first of all, what is a 529?
A 529 college savings plan is a state-run account that allows families to save money for college without paying taxes on it (and sometimes even with a tax cut).
So what did Congress change?
Senator Ted Cruz added an amendment to the December tax bill that allows families to use a 529 to pay for private or religious schools, homeschooling, or therapy for disabled students. This allows parents who send their kids to private schools to avoid income taxes on money they use for tuition. Before the new tax bill passed, families in about 25 states could obtain vouchers or tax credits to help pay for private school.
What’s the big deal?
The amendment allows certain families to avoid paying taxes on up to $10,000 in tuition money each year. While that might not sound like a big deal, the loss of tax revenue from private school students could have a big impact on states’ total income.
States spend tax money on things like roads, Medicaid, benefits for public employees, and even public schools. Health care and education are the two sectors that states spend the most money on, so they would probably suffer the most. State funds also help pay for the costs of operating public universities, meaning that if you go to state-funded university, a decrease in state tax revenue could increase what you pay.
On top of this, according to the Government Accountability Office, families who use 529 savings funds make about three times as much as families who don’t. Thus, the amendment can be interpreted as another tax break to benefit the rich.
With the massive amount of student loan debt in the U.S., we need laws that won’t interfere with our education. And while it’s not yet clear just how much the new changes to college savings plans will affect state income, we’re still worried. We just hope that the cost of college won’t increase any more after these new 529 rules take effect.