The following is an Op-Ed by Margaret Clancy, Policy Director & College Savings Initiative Director at the Center for Social Development (CSD). This letter was originally published in the Oregonian. More information on CSD’s work on inclusive college savings policy can be found here.
I applaud the co-sponsors of House Bill 2728 and House Bill 2740 for thinking creatively about ways to encourage more Oregon families to save in the state’s college savings plan. Financial incentives and streamlined procedures for contributing to the Oregon College Savings (529) plan, as called for in these bills, aim to promote saving. The goal should be to make it easier for families of all income levels to save for education beyond high school. In this regard, there is potential for Oregon’s 529 plan to become more inclusive.
Earnings in 529s grow free from federal income tax when used to pay for qualified educational costs. Many states, like Oregon, offer a tax deduction for families saving in the state 529 plan. Yet tax incentives provide more benefit to people with higher incomes.
To address this inequity, states around the country have introduced a variety of 529 reforms to reach more low- and moderate-income families. For example, many states, including Oregon, have low minimum contributions requirements — $25 — to open an account. Likewise, a handful of states, including Oregon, allow taxpayers to deposit part of their state tax refund directly into their 529 account, which streamlines the process for making contributions and takes advantage of an optimum saving moment. Oregon’s HB 2728 also allows taxpayers to save only a portion of their tax refund. This option gives taxpayers greater flexibility and may be especially attractive to families who need part of their tax refund for essential expenses.
In a similar vein, specific features of HB 2740 could facilitate access and promote saving for more Oregon families. These features include automatically contacting families of all newborns about the opportunity to save for their child’s college education, and providing a financial incentive to open an Oregon College Savings Plan.
HB 2740 proposes a $100 incentive for opening a 529 account, which may be attractive for many families with newborns. On the other hand, the proposed bill requires families to match the incentive within one year and make regular payments to maintain their account. These requirements might be difficult for some families.
Research shows that lower-income families save, but typically in small amounts over longer periods. Therefore, Oregon legislators might revise HB 2740 to extend the saving deadline to ensure that the financial incentive reaches children who need it most.
Studies suggest that saving for post-secondary education is about more than the money. Remarkably, youths with a savings account in their name are much more likely to attend college than those without an account. To put it simply, when young people have savings, they may hope more and work harder.
Policies designed to increase account ownership and savings may increase college attendance and later completion. In this way, a more inclusive Oregon College Savings Plan represents an opportunity to invest in the future of all Oregon children as well as the economic vitality of the State.