For a couple of weeks I've been setting aside news tidbits about college savings, and considering the size of said pile, it's time to share what's new with you. Spring, after all, is when high school students are eagerly receiving college acceptance letters.
And parents? Well, let's just say they're dreading the financial aid letters that are also landing in mailboxes. It's no wonder: A new report from the Minnesota Office of Higher Education revealed that Minnesota's students pay more than the national average for a postsecondary degree.
The rising cost of a college education is cause for concern around the country. A new report from Oppenheimer Funds reveals that the vast majority of parents doubt they'll achieve their college savings goals despite the fact that paying for higher education is a priority right up there with retirement planning.
Surprisingly, just one in five current or future savers uses or plans to use a 529 college savings plan. Those are the tax-advantaged accounts that allow tax-free withdrawals for qualified college expenses. The reason? Respondents don't like the idea of locking the money in an account that would penalize them for withdrawing money for something other than college costs, Oppenheimer found.
The most popular college savings tool is a plain old savings account. The other accounts you hear about for college savings -- the so-called Coverdell or education IRA and minor's trust accounts -- each attract just 4 percent of college savers.
More than two-thirds of the study participants said that federal and state tax deductions would motivate them to save for college. Minnesota is among the 17 states that don't offer such a deduction. However, Rep. Erik Paulsen, R-Eden Prairie, has introduced a bill to change that. His proposal even makes contributions to a 529 plan sponsored by any state tax-deductible.
Though the measure didn't make it far last session, Paulsen said he plans to push for it again this year. "Given the downturn in the economy ... and the high costs of tuition, this is a perfect opportunity to engage in finding additional incentives to save for college," he wrote in an e-mail.
Currently, the state offers a matching grant of up to $400 for participants in Minnesota's 529 plan, called the Minnesota College Savings Plan, for Minnesota beneficiaries whose parents have an adjusted gross income of no more than $80,000. For example, a family with adjusted gross income of $75,000 that contributes $2,500 would receive a 10 percent matching grant, or $250. Families earning $50,000 or less would receive a 15 percent matching grant per account beneficiary.