U.S. Rep. Ben Ray Luján
WASHINGTON, D.C. ― U.S. Rep. Ben Ray Luján (D-NM) has introduced the Save for Success Act, which creates a fully refundable savings credit program to better help middle class and working families save money for college expenses and to help address the growing student debt crisis.
Nationwide, total student loan debt now exceeds $1 trillion. In 2015, nearly 70 percent of seniors who graduated from public and nonprofit colleges had an average of $30,100 in student loan debt.
Currently, college tuition and savings programs, such as the American Opportunity Tax Credit (AOTC) allows families with college expenses to receive a $2,500 tax credit for a student’s first four years of post-secondary education for a total credit of $10,000.
This assistance, however, comes only after students have already incurred tuition and other higher education expenses. In fact, students often don’t receive assistance until months after they have paid their bills. Partly because of this, research shows that the AOTC fails to boost college success.
“College costs and student debt are weighing down too many students and families – in New Mexico and across the country. And while there are a number of tax-credit programs to help families pay for postsecondary education, these initiatives are less effective for families and students living paycheck to paycheck,” said Luján. “The Save for Success Act provides a tax credit for families as they save for college – providing help along the way and creating incentives for greater savings.”
Luján’s bill would reform and strengthen the AOTC to allow all Americans to save money for college, regardless of income. Specifically the bill would:
Expand the AOTC to support college savings. Through the new savings provision in Luján’s bill, families that save for their children’s future education would be eligible for up to $250 of the AOTC every year they save. The Save for Success Act makes this $250 savings credit fully refundable for working families to ensure that all Americans are able to take advantage of the program – especially those with lower incomes.
For example, consider a family that opens a 529 for their newborn and deposits $100. That year, the family would be eligible for a $100 tax credit. When the child eventually enrolls in college, he or she can use that savings and any accumulated interest to help pay for her education. She will also still be eligible for $9,900 from the AOTC. In short, this bill wouldn’t expand the size of the AOTC, nor would it lift the credit’s $10,000 lifetime cap. Instead, the Save for Success Act would advance AOTC eligibility to support college savings.
According to an analysis by the Corporation for Enterprise Development (CFED), a national non-profit dedicated to expanding economic opportunity for low-income families, a family maxing out Luján’s Save for Success credit starting at the birth of the child would have nearly $15,000 saved by age 18. The child would have used only $4,500 of his/her AOTC and so would remain eligible for $5,500 in additional support from the AOTC. All this is possible without expanding the maximum size of the credit by a dime.
“Saving for college, in 529s and other accounts, can have an enormously positive impact on higher education access and success. But we know that 529s mainly help the highest income earners while doing little for low- and moderate-income families,” said Andrea Levere, President of CFED. “Rep. Lujan’s Save for Success Act will change that by restructuring and strengthening the American Opportunity Tax Credit (AOTC). This legislation will make the AOTC and 529s work better together for lower-income families—encouraging them to start saving early for college and bringing the promise of college savings to all families.”
Create Real-Time Payments. Current tax-based student aid is delivered to students months after they’ve paid their tuition bills. In addition to encouraging college savings years before enrollment, the Save for Success Act creates a pilot program to test ‘real-time’ payment of the AOTC so students receive relief as they incur costs.
Increase AOTC Outreach /Awareness Efforts. For many students and families, tax-based student aid is invisible, which prevents them from considering it when determining how to pay for college. Almost 60 percent of those that do claim a higher education credit are unaware that they’ve received assistance from the government. Many others fail to claim these tax benefits at all. The Save for Success Act directs the Secretary of the Treasury and the Secretary of Education to establish a taxpayer awareness initiative to improve awareness of the AOTC.
The bill is supported by a number of groups including the CFED, NEA-New Mexico, United Way of Santa Fe County and New Mexico Voices for Children.
“Many students who succeed in New Mexico high schools find that a college degree is out of financial reach. Many who do patch together resources to attend, too often leave with a mountain of debt, leading to defaults on their loans with life-long consequences that hold back their families from financial success for years,” Betty Patterson, President of NEA-NM said. “Congressman Lujan’s Save for Success Act is an important step to make higher education more achievable for New Mexico students by helping families save for college.”
“When hard working families are better able to afford college for their children, we all benefit in our community. This Act will streamline important tax credits that students need immediately to help relieve the burden of tuition and enable them to focus on their studies,” Claire Dudley Chavez, Executive Vice President, United Way of Santa Fe County said. “We applaud Congressman Ben Ray Luján for his continued commitment to New Mexico’s working families.”