Education Savings Accounts Lifelong| [site:name]

Let Americans spend their ‘college savings’ on whatever form of education suits them best.

With American children now back in school, presidential candidates and their policy advisers are doing their own homework by developing their policy platforms for 2016, including what to do with federal education policy.

This gives Republicans an opportunity to offer a new approach to improving educational opportunities for American students. They can start by providing a valuable benefit to millions of middle-class families by transforming 529 accounts into lifelong-learning education savings accounts (ESAs). And, ironically, they can thank President Barack Obama for unintentionally revealing this political and policy opportunity.

In January, the White House released its budget proposal. It called for ending tax benefits for so-called 529 college-savings accounts, which allow families to save tax-free for their children’s college tuition.

The proposal was met with widespread opposition. It turns out that it’s unpopular to take away a popular tax benefit that helps middle-class families send their kids to college.

According to the Investment Company Institute, American families own nearly 11 million 529 savings accounts, which totaled $224 billion in assets as of December 2014. Families with incomes below $150,000 own the majority of these accounts, according to a survey reported by the College Savings Foundation.

Republicans were quick to blast the president’s proposal, which many called a middle-class tax hike. Leading congressional Democrats also voiced their opposition. According to the New York Times, House minority leader Nancy Pelosi lobbied White House officials on the issue while aboard Air Force One. President Obama quickly relented, axing the proposal barely a week after offering it.

A month later, the House passed bipartisan legislation, H.R. 529, which expanded the list of college-related expenses eligible for 529 savings-account withdrawals. A total of 401 members voted for the measure. The House bill included a congressional finding rebuking the president’s proposal, explaining that it would have discouraged college savings and required “families and students to take on more debt.” The Senate Finance Committee passed similar bipartisan legislation in April.

Looking to 2016, Republicans should propose new reforms to further enhance 529 savings accounts by expanding their allowable uses to include preschool, K–12, and post-college job-training expenses. This would effectively transform 529s into lifelong-learning ESAs that families could use as a vehicle to save for and purchase education throughout their lives. Right now, funds saved in 529 accounts can be spent only at eligible higher-education institutions, meaning those that are eligible for federal student aid.

This additional flexibility would provide a valuable benefit, offering families more power to improve their children’s learning opportunities, from age four through adulthood.

Before college, families could use funds to enroll their kids in better schools, take tutoring or online classes, or participate in academic-enrichment programs that help them prepare for college. The added flexibility would also improve adults’ ability to continue learning after college. Since many young workers and recent college graduates are struggling to find good-paying jobs in today’s economy, many would benefit if they reserved some of their college savings to pay for post-college job training and other classes that would benefit their careers.

The new flexibility wouldn’t necessary disrupt college savings. Families that wish to use their 529 accounts in the traditional manner, by saving for college, would be no worse off, but they could also spend the money on tutoring for a high-school student who has fallen behind or for SAT-prep courses for students hoping to get into competitive colleges.

Families that own existing 529 savings accounts would be the immediate beneficiaries of this reform. But it is likely that many more families would choose to use 529s if those accounts became lifelong-learning ESAs.

Currently, more than 30 states and D.C. offer state-income-tax deductions or credits for contributions made into 529 accounts, which are managed by states. For starters, homeschooling and private-school families in these states would likely be quick to take advantage of the new saving option and associated state-tax benefits.

#share#Disadvantaged families, however, would likely struggle to scrape together funds to save in these accounts. Given the real challenges that low-income children face in America’s schools, Congress should enact complementary reforms to ensure that they also benefit. Lawmakers should clarify that charitable contributions made to non-profits that pool donations for low-income students’ accounts would be eligible for a tax deduction, a point that is currently ambiguous. They could also reform other federal education programs to allow the intended beneficiaries to receive their share of funding as a deposit into an account if they forgo the government program.

These federal reforms to create and expand access to lifelong-learning ESAs would build upon ongoing efforts at the state level to give families more direct control of education funding. Five states, led by Arizona, have created laws to give families the choice of receiving a portion of their child’s share of public-education funding in state-managed ESAs. Families can spend the funds on predetermined expenses such as school tuition, tutoring, academic-enrichment programs, and instructional materials. States oversee and audit how the funds are spent to prevent abuse.

Many education-reform advocates who champion school choice now view ESAs as a superior vehicle for expanding choice.

Nevada has gone the farthest in offering parents direct control of their children’s education. Beginning in January, all public-school students will be offered the option of receiving their share of education funding in an ESA if they forgo public school.

Many education-reform advocates who champion school choice, including vouchers and tax credits, now view ESAs as a superior vehicle for expanding choice. Unlike vouchers, the accounts give families complete control over each dollar devoted to their children’s education and allow them to customize their children’s learning experience.

Several trends that are changing American education will likely make lifelong-learning ESAs a more attractive option in the years ahead. For example, the proliferation of high-quality and low-cost digital-learning options, like Khan Academy (which offers free online tutorials) and Coursera and edX (which offer online college courses), make it possible for students anywhere to learn from the best teachers in the world. They are also expanding access to higher education, which will allow students to get a college degree without paying six-figure tuition bills.

Many states and schools across the country are also moving away from the standardized approach to educating students. Rather than measuring student progress based on seat time and the agrarian calendar, some are allowing students to progress based on their mastery of subject material.

#related#In short, we are seeing the beginning of a transition to a personalized approach to learning in American education, one in which instruction and assessments are focused on helping each child make the most of every day spent learning and maximizing students’ ability to reach their potential.

ESAs are an appropriate funding vehicle to ensure that American students get the most out of their education. With average annual per-pupil spending in America’s public schools approaching $12,000, there may come a day when families have direct control of the more than $140,000 that taxpayers invest in their children’s K–12 education.

For Congress and the 2016 candidates, transforming 529 accounts into lifelong-learning ESAs would be an important step toward that promising future. It would provide an immediate benefit to millions of middle-class families and have the potential to help all American children down the road.

— Dan Lips is a research fellow with the Goldwater Institute and the author of a new report on lifelong-learning ESAs for the Conservative Reform Network.