Will College Savings Plans be Necessary if College is Free?
Free college tuition is an appealing idea as higher education costs continue to rise. Can the proposals of presidential candidates be counted on? The 2020 presidential election is a year away, yet one issue already is grabbing the public’s attention. Many candidates are promising student loan forgiveness and free college. If you offer an employer- sponsored college savings plan, you’re probably wondering if it will still be necessary. College costs are a top concern for many families.
The College Board says a moderate budget for a public college is about $25,290 per academic year and$50,900 for a private college. Unfortunately, most households aren’t equipped to handle these costs. A Sallie Mae representative estimates that only about 10 percent of families pay the cost of college out of pocket, while the rest borrow or use a combination of resources. Democrats announced several solutions, all government supported programs.
For instance, Candidate Sen. Bernie Sanders would make two- and four-year public colleges and universities tuition- and debt-free. Sen. Kamala Harris proposes making community college free and four-year public college debt-free. Sen. Elizabeth Warren proposed eliminating tuition and fees at public two-year and four year colleges. Former Vice President Joe Biden suggests streamlining the Public Service Loan Forgiveness program, focusing on teachers.
Republican President Donald Trump made major changes to student loan forgiveness programs, including eliminating taxing student loan discharge for people who qualify for the Death or Total and Permanent Disability clause (this only applies to loans discharged after Jan. 1, 2018, and the provision is set to expire in 2025).
Also, the Tax Cut and Jobs Act of 2017 expanded 529 college savings plans to cover K-12 private school expenses. Parents and students should not rely on promises of free tuition. They should instead continue saving in plans such as the 529 plan. Even if one of these proposals becomes law and pays for tuition and fees, students still should save money for textbooks or living expenses. If a child decides to not attend college, 529 funds can be transferred to different family members or used to pay for graduate school.