Bush Budget Proposal Could Boost 529s

One of the little-publicized proposals of President Bush’s 2008 Budget Proposal could give a boost to companies marketing 529 college savings plans, according to the San Francisco Chronicle.

The provision, which has already raised questions among some Democrats in Congress,  would exclude any savings in 529 plans when calculating federal college financial aid packages. 

And while it might not affect those who can afford to stow away the $250,000 per child allowed by law, it could make a difference for those who straddle financial aid lines, for example those with incomes between $40,000 and $60,000, according to Nancy Coolidge, a financial aid coordinator for the University of California system.

Often, people near this income level are hesitant to save for college, afraid it may disqualify their children from certain aid.

The President’s proposal, which would take effect with the start of the upcoming school year, might encourage people to save, rather than borrow, she said.

“To the extent I have been out educating people on college savings, the financial aid impact always comes up,” said Bruce Harrington, director of 529 plans at MFS Investment Management.

Harrington added that although custodians are allowed to save up to $250,000 per pupil  in their 529 plans, the average account balance is only $12,000.

The proposal may face challenges from some Democrats, including Sen. Ted Kennedy (D-Mass.), chairman of the Senate Committee on Health, Education Labor and Pensions. “We feel it’s appropriate to count assets, including money saved in 529s,” his spokeswoman, Melissa Wagoner, said. 

Likewise, Chairman of the House Committee on Education and Labor, U.S. Rep George Miller (D-Calif.), said, “The problem is that the proposal has the potential to favor certain groups of low-income students over other groups of low-income students. The more equitable solution would be to increase Pell Grant scholarship, which would benefit all low-income students,” he said.

The Bush proposal includes no income offset measure, and does not need one, according to the White House.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.