Statements on Introduced Bills and Joint Resolutionsby Senator Chuck Grassley
Posted on 2015-02-02
GRASSLEY. Mr. President, I am glad to be joined by Senator Casey
of Pennsylvania in introducing bipartisan legislation to improve upon
the already immensely successful college 529 savings programs. Those
are savings plans to go to college. The 529 plans have helped millions
earn a college degree without piling up a mountain of debt. These plans
have long had strong bipartisan support, and I am glad the introduction
of this bill today continues that tradition.
Given the bipartisan nature of 529 plans, it came as a shock to me, and I am sure to most of my colleagues, when the President put forth a proposal that would undermine years of hard work toward making savings for college as accessible as it is today. College savings vehicles, we now know by the Tax Code section--that is where section 529 comes from--were first started by States in the late 1980s. However, it was only after a bipartisan effort led by then-Senator Bob Graham of Florida and Senator McConnell, [[Page S699]] now our majority leader, in 1996 that these savings plans were finally enshrined in section 529 of the Tax Code.
By recognizing college savings plans in the Tax Code, States and participants could now be certain about the favorable tax treatment they would receive and thus the plans flourished. During this time, individuals' parents and grandparents were able to contribute to savings plans with certainty that the college savings for themselves and their loved ones would accumulate tax free. However, while 529 plans could accumulate interest tax free, tax was still owed once money was distributed to pay for college.
So in 2001, as chairman of the Finance Committee, I worked with Senator Baucus of Montana and others to advance a proposal to further enhance college savings by excluding distributions from 529 plans from income tax so long as the money was used to pay for college education costs. We were then successful in making this provision permanent in the tax law as part of the Pension Protection Act of 2006.
This change helped 529 plans take off to even new heights. From 2001 to 2002 assets in these plans doubled from $13 billion to $26 billion and totalled nearly $245 billion by July last year. The total number of accounts also nearly doubled. The number of accounts increased from 2.4 million in 2001 to 4.4 million in 2002 and increased to nearly 12 million by July of last year.
The misguided proposal put forth in the President's State of the Union Address has a potential to reverse these gains by once again subjecting distributions to tax. The policy rationale given by the President was that too much of the benefit for 529 plans went to more affluent households and individuals. I believe a big reason the President's proposal was met with bipartisan disapproval is that we all know firsthand through communications with our constituents back home that the typical family with a 529 account is one with only modest means. We hear about how they have scrimped and pinched pennies so they could put money away for their child's college. They have a dream of sending their child to college and graduating without a crushing amount of debt holding them back as they start their new career post-college.
Data from the College Savings Plans Network backs up this anecdotal evidence that we receive at the grassroots from our constituents. On a national basis the average account balance is under $21,000 and for Iowans the average balance is slightly lower than $17,878. This is obviously hard evidence that a typical family contributing to a 529 account is far from being part of the wealthy elite the President wants us to believe they are.
A private study commissioned by the College Savings Foundation further demonstrates that these accounts are largely held by middle- class families. According to this study, about 10 percent of 529 accounts are owned by households with income below $50,000, over 70 percent are owned by households with income below $150,000, and almost 95 percent of 529 accounts are in households with incomes below $250,000.
The bill I introduced today with Democratic Senator Casey will help build on the success that has so far been achieved by increasing the attractiveness of 529 plans.
This bill has three primary provisions: The first provision recognizes the reality that in today's world a computer is just as much a necessary educational tool--and the expense associated with it--as a required class textbook. As such, this bill allows 529 funds to purchase a computer on the same tax payroll basis as other required materials.
The second provision eliminates an outdated and unnecessary aggregation rule that increases paperwork and costs for plan administrators.
The final provision provides tax and penalty relief in instances where a student may have to withdraw from school for illness or other reasons. Under current law, any refunds from the college are subject to immediate taxation and a 10-percent tax penalty. This provision eliminates this tax and penalty if the refund is redeposited in a 529 account. This permits a family to set the refund aside to pay for the student's education should that student be able to return to college or to use it for another family member.
The reforms in 529 plans included in Senator Casey's and my bill are very modest but will help keep administrative costs low and provide a little extra incentive for parents to put money away for their child's education. The bill further demonstrates a renewed bipartisan commitment to 529 plans that will hopefully help erase concerns some may have in contributing to 529s given the President's misguided proposal.
I hope Congress will act on this legislation and speak with a loud bipartisan voice on its commitment to college savings.
______ By Mr. CORNYN (for himself, Mr. Leahy, and Mr. Grassley): S. 337. A bill to improve the Freedom of Information Act; to the Committee on the Judiciary.