A National View of Minnesota: New College Savings Plan: Good for Politicians, but Providing Little Relief

Published July 1, 2016

In 2016, Minnesota became the 35th state to approve tax deductions on contributions made to 529 college savings plans. Some politicians in St. Paul can now appeal to youthful voters in time for November by using this legislative measure as political fodder. But in reality, Minnesota barely scratched the surface in helping alleviate the burden of rising college tuition costs.

The decision to allow tax-deductible contributions to 529 plans is a positive baby step toward helping parents save for their children’s educational future. But it may be too little and too late to solve the growing student-debt burden facing Minnesotans.

The deduction will allow Minnesotans who contribute to college savings accounts to qualify for yearly tax deductions of up to $1,500 ($3,000 if filing jointly). While that may seem like a good deal on the surface, rising tuition costs make such a small amount nearly useless.

For instance, at the University of Minnesota’s Twin Cities campus, the total cost of tuition and related expenses — which on the school’s website are broken into categories such as “tuition and fees” ($14,186), “costs to live on campus” ($8,962), “transportation expenses” ($1,700), “books and supplies” ($1,000), and “miscellaneous” ($2,000) — is nearly $28,000 for the 2016-17 academic year. This means the proposed tax credit would only provide to joint filers a maximum of approximately 10 percent of one year of study — and approximately

5 percent for single parents and students. And the University of Minnesota is not even close to being one of the state’s most expensive schools.

Making matters worse, the cost of attending college is expected to continue increasing in the coming years. In 2009, the American Institute for Economic Research reported a 284.4 percent increase in college tuition and fees between 1990 and 2008, making college the most inflated consumable good in the United States, even passing the highly publicized cost increases for health care. And tuition only has further increased since then.

On the 2015-16 “College Planning Essentials” website, run by J.P. Morgan Asset Management, it is reported that the average 2014-15 academic year’s tuition cost increased

16 percent compared to the previous year. The report figured that if college costs rise 5 percent annually, the cost of an average public university will rise from $19,548 per year in 2016 to $47,045 in 2034. That means families will be looking at four-year-degree costs averaging over $188,000.

Minnesota is fifth in the nation in college loan debt per resident with an average balance of $32,000 in loans, according to a report in the Star Tribune. Departments within the state, such as the Minnesota Office of Higher Education, have attempted to address this problem with additional government social programs. In January, a new student loan refinancing program, SELF Refi, was created using the sales of revenue bonds to help ease the financial burdens faced by many Minnesota residents. SELF Refi offers a maximum refinancing amount of $70,000 for a bachelor’s degree or graduate degree.

Such refinancing options can only help alleviate existing student loan troubles.

Allowing better tax incentives on savings accounts for future costs can make a stronger impact on current and future college spending. There needs to be greater tax-credit incentives that actually match the current and expected future costs of college. Contrary to what many politicians are saying, $3,000 a year doesn’t cut it.

Since 1994, 35 states have implemented legislation to include tax breaks for those saving for a college education, four of which offer tax deductions on the full amount of contribution. Four additional states offer deductions of up to $10,000 for single taxpayers and $20,000 for joint filers. Of the 35 states with programs, the only states offering fewer monetary incentives than Minnesota’s recent legislation are Indiana, Maine, Utah and Vermont.

Though Minnesota’s elected officials likely will brag to voters this year about the significance of this legislation, they’re offering very little relief for a surging, significant problem. Politicians who prey upon this legislation as a political talking point during this election season are doing a disservice to the individuals and families facing rising college costs as well as to the economy of the state as a whole, which will need affordable education to prosper in the future.

[Originally published at the Duluth News Tribune]