Reintroducing the Save for Success Act!

Yesterday, Representative Ben Ray Luján (D-NM) reintroduced the Save for Success Act (H.R. 2378) to help turn the tax code right-side up and support low- and moderate-income families as they save for college. The bill reforms the American Opportunity Tax Credit (AOTC) to give families a boost at tax time as soon as they start putting money aside for higher education. By allowing them to claim up to $250 of the AOTC each year they save in a 529, families see tax benefits as soon as they save – not after they've gone to college and paid tuition.

We all know the benefits of saving for college and have shouted them from the rooftops. Research shows that starting to save early for college results in stronger college expectations, higher graduation rates, improved social-emotional development and greater likelihood to own savings accounts as adults.

But 529s don't work for everyone. The Government Accountability Office found in 2012 that families with 529 plans or Coverdells (similar to 529s but also applicable to primary and secondary schools) had median incomes of about $142,000 per year compared to $45,100 for families without. That's in part because the tax advantage comes when money is withdrawn from the account – not up front when a deposit is made. The Save for Success Act fixes this, creating a stronger incentive for families to start saving early.

As is, the AOTC allows low- and moderate-income families with college expenses to receive a $2,500 tax credit for each of a student's first four years of higher education. The problem is that this support only comes months after families pay for college, so low- and moderate-income households who don't have the ability to outlay this expense still struggle to keep up with college expenses. The Save for Success Act will encourage these families to start saving early for college by making them eligible for up to $250 of the AOTC for every year that they save in a 529, starting with the birth of their child. Instead of having to wait to until the college years to get the tax benefits of paying for college, they would be incentivized to start saving from the birth of their child.

The lifetime cap of $10,000 for the AOTC remains. So if the family saved $250 for every year until their child turned 18, they would still be eligible for $5,500 in support during the college years to pay for tuition, fees, books and other college expenses. The bill doesn't raise the value of the credit — it would just deploy existing federal spending on higher education more effectively.

Endorsed by the National Education Association, the American Federation of Teachers, 529 Dash, Center for Global Policy Solutions, Center on Assets, Education, and Inclusion at the University of Kansas, Center for Social Development at Washington University in St. Louis, First Focus and "I Have a Dream" Foundation, other features of the bill include improved outreach around the AOTC to bolster awareness so that more families know about and can take advantage of the program and a volunteer pilot program to test "real-time" payments of the AOTC so that students can receive financial relief when their education expenses are due throughout the year instead of waiting until tax season.

By restructuring the AOTC, the Save for Success Act has the potential to increase the number of low- and moderate-income families saving for their children's future. Ask your member of Congress to cosponsor the Save for Success Act (H.R. 2378) today, and if you want to learn more about legislation like this, sign up for our Turn It Right-Side Up campaign today!

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