Saving to pay for a child’s future college education? Paying down student loan debt? Or doing both — as are a growing number of young families? There’s good news for you in the tax bill passed by the GOP-controlled Legislature and signed into law by DFL Gov. Mark Dayton last week.
State tax breaks both for saving for college and for paying off student loans are features in an otherwise controversial tax bill that we think all Minnesotans can cheer. Their $75 million cost over two years can fairly be included in the 2017 Legislature’s total tally of higher education investments, adding a little luster to what was otherwise a ho-hum session for higher ed in the Brainpower State.
Families saving for college via any state’s Section 529 tax-advantaged college savings plan can get help under the new law in one of two ways: a state income tax credit or a subtraction. The credit equals 50 percent of 529 plan contributions up to a maximum of $500 per year, and it is income-limited to target lower- and middle-income families. The subtraction, available to those who do not claim or are not eligible for the credit, allows for contributions of up to $3,000 (for married joint filers with one or more accounts) and $1,500 (for all other filers) to be subtracted from taxable income.
Admittedly, those amounts provide only modest inducement for college savings. Together, the 529 provisions stand to cost the state treasury only about $10 million per year. In many cases, the change will reward families for a financial decision they would have made without a tax incentive. Still, the 529 provisions in the tax bill send a state policy message worth reinforcing: Financing higher education in Minnesota is a shared public and private responsibility, intended to be borne jointly by students and their families, institutions and their donors, and taxpayers.
Our applause is louder for the new student loan credit. It may make Minnesota the first state in the nation to offer student loan debtors reimbursement for a portion of their loan payments, up to a maximum of $500 a year. At a cost to the state treasury of $55 million over two years, it’s a serious effort by lawmakers to send a timely message to college-educated young adults: Take a job in Minnesota, and the state will help you pay off your student loans. That’s a message that the state’s talent-hungry employers ought to welcome and put to use in their own recruitment efforts.
The credit is nonrefundable, which means it won’t reach the lowest-income college debtors who pay little or no state income tax, even though they need assistance the most. That’s a flaw that we hope future Legislatures will correct.
The student loan credit is pleasing policy for one other reason. It’s a tacit acknowledgment by state government that its retreat from higher education support in the past two decades has been a major contributor to rising tuition at public institutions and, as a result, heavier student loan debt loads. In 2014, Minnesota grads carried the nation’s fifth-highest average student debt, at $31,579. In that light, state government’s help in paying off those loans seems not only justified, but also overdue.