Volume
1 Issue 3- May 2001
Jeff Sessions
"Currently, the interest earned by families saving for college is taxed twice."
By U. S. Senator Jeff Sessions (R-Alabama)
SENATOR SESSIONS' COLLEGE BILL MAKES TUITION 100 PERCENT TAX-FREE
As a parent who has put two children through college and who has another currently enrolled in college, I know first-hand that America's families are struggling to meet the rising cost of higher education. In fact, American families accrued more college debt in the 1990s than during the previous three decades combined.
The reason is two-fold: the federal government encourages borrowing by subsidizing student debt with interest rate breaks and penalizes savings for college by taxing the interest earned on those savings. These policies do not foster the highest and best values. Ideally, families should be encouraged, not discouraged, from saving for college.
In recent years, many families have tackled rising college tuition costs by taking advantage of tuition savings and prepaid tuition plans. This is a wonderful development. Theses plans allow families to purchase tuition credits years in advance. Families across the country are locking in tomorrow's college education at today's price. 49 states have or are in the process of establishing a tuition savings plan, a prepaid plan, or both. These plans are extremely popular with parents and students.
Alabama was one of the first in the nation to establish a prepaid college tuition plan. Nearly 50,000 Alabamians are currently enrolled in the Alabama Prepaid Affordable College Tuition Plan. Families across the state are setting aside a few dollars each month to pay for the future college education of their children.
Congress has supported participating families by expanding the scope of the prepaid tuition plans and by deferring the taxes on the interest earned until the beneficiary goes off to college. I believe that we must go one step further and make all of the interest earned in state or private prepaid plans tax-free. Currently, the interest earned by families saving for college is taxed twice. They are taxed when they earn the money, and then again on the interest that accrues from the savings.
This is why I introduced the Collegiate Learning and Student Savings (CLASS) Act in the senate. I am pleased to be joined in this effort by a bipartisan group of 19 co-sponsors. This legislation is both sound education policy and tax policy that completely eliminate the federal taxes on the interest earned in all tuition savings and prepaid plans. We must stop penalizing families that are doing the right thing and saving money for their children's education. Passage of this bill will allow us to meet this goal. The cost is small, but it will give an extra incentive for families to be prudent savers for their child's college education.
(Editor's note: Session's legislation passed the Senate Finance Committee on March 13, 2001).
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SENATOR SESSIONS' COLLEGE BILL MAKES TUITION 100 PERCENT TAX-FREE
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