The Maneater (Missouri)
By: Caitlin Kerfin
November 30, 2010
Saving earlier could encourage families to save more.
The New America Foundation wrote a report this month, Enhancing Tax Credits to Encourage Saving for Higher Education, calling for reforms of the advancing the American Opportunity Tax Credit and reforming the Saver's Credit.
The reforms would mainly help lower-middle class families save for college, while also streamlining the system at a relatively low cost to taxpayers. The college savings initiative was launched in 2009 working with The New America Foundation and the Center for Social Development at Washington University in St. Louis.
Mark Huelsman, the author of the report, said in an interview this month there are a "whole mess of tax credits, so by streamlining them, more people will take advantage."
"Better-targeted incentives -- particularly via existing tax credits -- could positively impact savings behaviors, as well as make higher education a more concrete possibility for lower-middle class income families in ways that simply increasing financial aid packages may not," the report stated.
Existing credits are only applied to tuition and fees, not other school-related expenses. The report suggests the credits should be changed to be able to go toward room and board, transportation and books and supplies.
One of the major arguments of the report is that if credit is given earlier, families will save earlier, thus "impacting student aspirations at a much earlier age." Some students go through school always knowing they will go to college, but many students do not know if they'll be able to afford it.
Those students, or students who have been told by parents they cannot afford college at all, might not try as hard in school, having no higher education goals. The change in the credits would allow for parents to be able to tell their child they are saving for college, allowing for those aspirations to be present.
"With college becoming seemingly more and more expensive, especially for low and middle income families, if we gave them an opportunity to build savings early on in their life, not only is that money going to be there and can grow, but it can change a student's aspirations early on in life instead of waiting until you're 18," Hueselman said.
According to the report, "a traditional eighth grader whose parents claimed the credit at age 13 would be eligible to use the monies accumulated from the AOTC until age 28, which is the average age of community college students in the United States."
Andrew Zumwalt, an associate state specialist for financial planning in the MU College of Human Environmental Sciences, said he is unsure of the situation.
"Eighth grade seems quite trusting, so will the family be hit hard if the child doesn't go to college and eventually has to pay that money back?" he said.
The report states that if the student does not attend college within 15 years of first claiming the credit, any government monies accumulated from the tax credit would then be required to be paid back to the IRS.
Zumwalt says this effort to make the system less complicated is having the opposite effect.
"Seems like a record keeping challenge for the IRS having to make sure the child goes to college, and if they are not, getting that money back," he said.