U.S. Senator Ted Cruz (R-TX) is proposing to expand education choice by allowing families to use a type of 529 College Savings Plan for homeschooling and other K-12 education expenses.
The 529 plans allow parents, grandparents, or others to save for the future college expenses of a designated beneficiary. A type of 529 plan known as an education savings plan allows up to $10,000 per year per beneficiary of funds in the plan to be used for tuition at any public, private, or religious elementary or secondary school.
Parents currently cannot use education savings plan funds for expenses related to homeschooling, tutoring for special needs students, apprenticeships, or student loan payments. A retirement reform bill passed unanimously by the House Ways & Means Committee included provisions that would have allowed parents to make broader use of the 529 funds, but the language was stripped out of the bill before passage by the House.
The House retirement reform bill, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), passed the House on a 417-3 vote on May 23 and was scheduled for “fast-track” approval in the Senate by unanimous consent. The Senate did not proceed to a vote before the Memorial Day recess, because Cruz placed a “hold” on the bill in order to allow consideration of the 529 expansion.
529 Education Savings Plans
Tax-advantaged 529 plans are created by states or educational institutions and come in two varieties: prepaid tuition plans and education savings plans.
Prepaid tuition plans are usually limited to public colleges and residents of the sponsoring state. The uses of the accounts are limited to tuition and mandatory fees and do not include living expenses.
Under the more flexible education savings plans authorized by federal law in 2001, a state administers the plan and the individual accounts are invested by private plan managers at the direction of the saver. There is no residency requirement for participation. Generally, savings plan funds can be used for the beneficiary’s future qualified higher education expenses—tuition, mandatory fees, and room and board—at any college public or private college.
The Tax Cuts and Jobs Act of 2017 (TCJA) expanded the eligible uses of education savings plans to include up to $10,000 per year per beneficiary for tuition at any public, private, or religious elementary or secondary school. Savers are allowed to make after-tax deposits to the accounts of up to $2,000 per year, and the accumulated earnings generally are not subject to federal or state tax.
All 50 states and the District of Columbia sponsor at least one type of 529 plan.
Cruz introduced the Student Empowerment Act (SEA) in 2018, and provisions of the bill were added to the SECURE Act in the House.
SEA would allow money in 529 savings accounts to be used by homeschooling families for tutoring, standardized testing fees, and educational therapies for students with disabilities, says Leslie Hiner, vice president of legal affairs for the EdChoice Legal Defense & Education Center.
“The Student Empowerment Act provides additional choices for parents who seek to provide the best educational options for their children,” Hiner said. “Expansion of 529 Savings Plans empowers parents to choose a wider variety of educational options for their children.”
Saving money for expenses such as private school tuition is difficult for middle- and working-class families, Hiner said.
“Families often save for future educational expenses, whether for private school tuition, homeschooling, or related expenses,” Hinder said. “It’s not easy to do when young parents are also struggling to feed and clothe their children and themselves, and provide a stable place to live. But 529 Savings Plans offer a lifeline of support for those families. Every little bit helps when trying to provide for your family.”
‘Empower Parents to Decide’
The savings accounts would be a boon to parents who want to homeschool, Hiner says.
“The expansion of 529 Savings Plans will offer help to those families who would like to homeschool their children,” Hiner said. “In our annual Schooling in America surveys, we found that interest in homeschooling has doubled over the last several years.”
The flexibility of Education Plans allows families to supplement state financing of education choice through tax credits and scholarship programs, Hiner says.
“While the 529 Savings Plans is a federal program, it is complementary to state educational choice programs without imposing the usual federal bureaucratic red tape,” Hiner said. “We should support every way possible to empower families as they strive to meet the educational needs of their children.”
‘Greater Opportunity for Success’
Parents want more choices for their children’s education, and that includes homeschooling, says Lindsey Burke, director of the Center for Education Policy at The Heritage Foundation.
“Every parent knows no two children learn in the same way, and children learn better when their education is tailored to their needs,” Burke said. “Accordingly, many families choose to homeschool since the traditional brick and mortar school is not the best fit for their children.
“Sen. Cruz’s 529 proposal enables parents to save more of their hard-earned money, allowing them to save for homeschooling expenses,” Burke said. “Greater choice for American families means children will have a greater opportunity for success.”
Ashley Herzog ([email protected]) writes from Avon Lake, Ohio. Kenneth Artz ([email protected]) writes from Dallas, Texas.
Sen. Ted Cruz (R-TX): https://www.cruz.senate.gov/