Expanding Education Savings Accounts Would Help Poor, Middle Class

Expanding Education Savings Accounts Would Help Poor, Middle Class

Increasing the amount of tax-free investment that parents contribute to education saving accounts (ESAs) would benefit middle and low- income families, according to Joe Barnett, a policy analyst with the National Center for Policy Analysis.

Current law allows families to contribute only up to $500 to ESAs, investment accounts that allow parents to invest for their child’s college education. The contributions to ESAs are not tax deductible, but the money earned from these investments and withdrawals are tax-free

According to Barnett, the $500 limit is not enough.

“Even after investing the maximum amount in an ESA – a mere $42 per month – for 16 years, families would have saved only $15,000, assuming a 7.5 percent return,” writes Barnett. “This is far less than the cost of four years of enrollment at most colleges.”

A new bill passed last week by the Senate would allow for several changes in the law. Foremost, it would increase the limit on contributions from $500 to $2,000 a year; allow contributions to both a prepaid state college tuition plan and an ESA benefiting the same student; allow corporations and nonprofit organizations use ESAs to set up scholarship funds for low-income children, and expand the use of ESAs to include expenses related to elementary and secondary education at public, private or religious schools and home schools, in addition to college. The primary beneficiaries of the new law, according to Barnett, would be children from middle- and low-income families.

“Permissible contributions would be phased out for individuals with modified adjusted gross incomes between $95,000 and $110,000 and for couples with incomes between $150,000 and $160,000,” Barnett notes. “Higher-income families would not be allowed to make contributions to ESAs for the benefit of their children. By 2002, 14.3 million families would benefit from the bill; with about 10.8 million of them families with children attending public schools. Seventy-five percent of the tax saving from these accounts would go to families whose income is less than $75,000 a year.”

Grade Inflation, Academic “Disengagement” on the Rise, Study Finds

Thirty-four percent of college freshmen say they finished high school with an A average compared with 32.4 percent in 1998 and 12.5 percent in 1969, according to a fall 1999 survey conducted by the Higher Education Research Institute at UCLA’s School of Education and Information Studies. Only 12 percent of freshman report a C average compared with 13.4 percent in 1998 and 32.5 percent in 1969. The study surveyed 364,546 students at 683 of the nation’s two-and four-year colleges and universities. The data was culled to be representative of the 1.6 million freshmen entering college as first-time, full-time college students last fall.

Academic “disengagement” is also up, according to the survey. More than 39 percent of college freshmen reported feeling frequently “bored in class,” up from 37.7 percent in 1998 and a low of 26.4 percent in 1985. A record-low 31.5 percent of freshmen say they spent six or more hours a week studying or doing homework in their last year of high school, compared with 32.9 percent in 1998 and 43.7 percent when the question was first asked in 1987.

Drinking beer and smoking cigarettes appear to be losing popularity with students. Just over half (50.7 percent) of freshmen say they drank beer frequently or occasionally in the past year. That’s down from 51.6 percent in 1998 and a high of 75.2 percent in 1981. For more on this survey, contact Kay Cooperman at cooperman@gseis.ucla.edu.