College Savings

Michael Malone

Michael Malone
Delegate, District 33

Going to college has long been part of the American Dream. Over the holidays, my family and I relaxed in front of the iconic film “It's A Wonderful Life,” where George Bailey (Jimmy Stewart) contemplates ending his life, counting not going to college among his personal failures. Instead, after working and saving while his friends went to college, George took over the family business, the good ol' Building & Loan, after his father unexpectedly died, so his college savings went to his brother.

That was the 1920s, and George Bailey faced other challenges and made other sacrifices, but one problem remains the same: how to effectively save for college. College debt has been escalating over the past 10 years, prompting recent articles in outlets from CNBC to Forbes to Consumer Reports to Time. According to Bloomberg, federal student loans is the only consumer debt segment with continuous growth in the past 10 years, having grown over 150 percent over the past 11 years, and is the second-largest segment of consumer debt after mortgages. Currently, there is $1.5 trillion owed in student debt, which trickles down into the economy as fewer graduates are able to save, invest, buy homes or start businesses.

No doubt, many of you are familiar with 529 college savings plans. Created in response to the 1996 Internal Revenue Code change, these state-sponsored plans offer contributors one of the best long-term options for saving for college. Growth is not taxed, nor are distributions so long as they are used to pay college-related expenses.

Here in Maryland, contributions to the Maryland 529 plans are tax-deductible on your Maryland tax return - to a certain extent. An account holder or a contributor can deduct up to $2,500 of contributions each year from Maryland state income per beneficiary per account. This $2,500 amount has remained unchanged since the Maryland 529 plans were first created in 2001. That's right, since 2001, when the average college debt in the 1990s was $10,000, not over $37,000 like it is today. Leaving aside the effects of the college debt crisis, this $2,500 amount should be increased to account for the rapidly increasing costs of college, to account for inflation, to reflect reality. When the Maryland 529 plans were created in 2001, $2,500 covered the annual contribution for the most expensive four-year prepaid university plan. Now, every prepaid plan has a minimum annual payment in excess of $2,500 and the annual cost for the four-year university prepaid plan is more than $5,700 if you start when the beneficiary is in first grade.

To this end, I am filing a bill in the House of Delegates this session to double the tax deduction from $2,500 to $5,000 per year per beneficiary per account. Obviously, I have no illusions that this measure will fix the nationwide college debt crisis. However, to the extent that we can encourage parents, grandparents, families, even the students themselves to save first for college, that will help reduce the burden of college debt. After all, despite the sensational stories of persons owing $200,000, which ballooned to more than $400,000, the largest concentration of college debtors owe between $10,000 and $25,000. That amount can become smaller with more saved and investment growth over time, especially if you didn't have to pay Maryland or federal income tax on growth or distributions. Let's make college more affordable by encouraging savings, and support a bill to increase the state tax deduction allowed for Maryland 529 plans.