Expand 529 plans to include K-12 expenses

May 21, 2012

Why limit 529 college savings plans to higher education?

“Families might question why the federal government tax-advantages one form of education savings (higher education) over another (K–12),” Heritage Foundation researchers Lindsey Burke and Rachel Sheffield point out in a new report. If education-savings plans are important for 18-year-olds, why not 17-year-olds? Or, for that matter, 7-year-olds?

After all, it’s pretty clear that part of the problem with higher education is that too many students are unprepared for it. Indeed, fewer than half of college-bound seniors are “college-ready,” though of course universities cheerfully take them and their money anyway (99.7 percent acceptance rate?!). Hence our distressing remediation costs, abysmal graduation rates, and questionable return on investment (for some colleges and universities in Oklahoma, the ROI is actually negative). It’s no wonder that billionaire businessman Mark Cuban says a meltdown is coming to higher education.

We need better-prepared students, which school choice can help deliver. And as Burke and Sheffield point out, “the popularity of 529 college savings accounts indicates that families would likely take advantage of the option if it were made available for K–12 education expenses.” Their recommendation:

Section 529 of the Internal Revenue Code should be expanded to allow families to contribute money to 529 plans for K-12 educational expenses. Contributors should be allowed to invest in 529 plans, with disbursements for education expenses remaining exempt from federal income tax requirements. Revising Section 529 to make K–12 expenses allowable would significantly increase the school choice landscape by creating opportunities for millions of American families to open ESAs [education savings accounts].

If it’s a good idea for 18-year-olds, it’s a good idea for 17-year-olds.

Brandon Dutcher can be reached at twitter.com/brandondutcher or facebook.com/brandondutcher.