The Republican tax plan going under the reconciliation knife this week includes a provision that would expand 529 college savings plans to cover K-12 education—a change hailed by some as a “game changer” for the school choice movement.
The provision, added by Sen. Ted Cruz, R-Texas, would allow parents to use money in 529 plans to pay for private schooling, homeschool materials, online education, and educational therapy for students with disabilities. The list mirrors the benefits of educational savings accounts, the voucher improvement plan now favored by school choice advocates. But 529 plans don’t involve taxpayer funds, giving parents the freedom to use the money as they see fit, no government strings attached
Critics of the Cruz plan point to two serious flaws: It won’t benefit low-income families and it really offers little benefit for families hoping to use the money right away.
Parents contribute to 529 plans with after-tax dollars. The interest earned on investment is not taxed, and that growth can really add up over time, especially if parents begin stashing funds away when their children are young. But the benefits of compounding interest diminish if parents start taking the money out too soon. The plans also don’t offer much help to families that can’t afford to save in the first place, making them a benefit for parents already able to afford school choice.
Nat Malkus and Preston Cooper, education policy analysts with the American Enterprise Institute, offer a blunt criticism of the Cruz plan: It won’t expand school choice.
“The benefits are too marginal to provide many families with new options,” they wrote. “The parents who will benefit most from these changes are those who already send their children to private schools or have access to tax advisors to help them plan their savings. If Congress really wishes to advance the administration’s stated goals on school choice, it would do better to scrap these reforms to 529 plans and come up with a different proposal.”
But the Home School Legal Defense Association (HSLDA) supports the change, saying it will help homeschooling families pay for pre-college expenses.
“The bottom line is that a 529 plan is your own money, not government money,” wrote William Estrada, federal relations director for HSLDA. “You put it into your own account after taxes. You decide whether and how to use it, or even whether to create a 529 plan for your children. HSLDA is hopeful Congress will ensure that homeschoolers have another tool in their financial toolbox as they educate their children at home.” —L.J.