Rising College Tuition Spurs Savings Incentive Plans in Congress

The political fervor awakened in state legislatures this year by rising college tuition is catching on in Congress, where more than a dozen proposals have been introduced to provide families an incentive to save for higher education.

The latest measure was offered Friday by Sens. Edward M. Kennedy (D-Mass.) and Claiborne Pell (D-R.I.), whose proposal would allow families to use U.S. Savings Bonds to pay for college. As an incentive, the program would exempt the earnings from federal income tax.

A range of other proposals is already before the House and Senate: education trust funds, tax-free accounts modeled after individual retirement accounts and savings bonds similar to the U.S. Savings Bond program.

40 States Weigh Plans

The concept has swept state legislatures, with tuition-payment plans under consideration in nearly 40 states. Six states have enacted tuition-guarantee plans, allowing parents to put down a lump sum and be guaranteed their child’s full tuition would be paid in the future.

The political appeal of tuition-payment plans reflects a growing, deep concern that college costs, which continue to climb faster than inflation, could make higher education inaccessible to millions of American youngsters. If enacted, both the federal and state programs could revolutionize the way families finance their children’s college expenses.

“We cannot allow rising costs to put a college degree out of reach,” Kennedy said, citing projections showing tuition and fees for four years at a selective private college reaching $140,600 by the year 2005. “These figures are astronomical and way out of the ability of most working, middle-income families.”

The proposals, however, are not without problems. Given the concern over the federal deficit, the cost of the programs presents perhaps the largest obstacle. Kennedy estimated his proposal would cost $845 million after 15 years, if a million families invest $500 a year.

Tax Overhaul Cited

There also is skepticism about any further tinkering with federal tax incentives, given last year’s tax overhaul. Virtually all of the proposed programs, state and federal, offer tax incentives.

Nevertheless, elected officials are scrambling to come out with their own versions of the plan, prompted by the steady rise in tuition costs. The College Board reported this summer that college tuition and fees will outstrip the rate of inflation for the seventh straight year, rising an average of 6% at four-year public colleges. The consumer price index rose 3.7% in the last year.

The tuition savings programs have gained support from both Democrats and Republicans, including Vice President George Bush, who has proposed an education savings-bond program as part of his presidential campaign.