Free College? Don't Drop That 529 Plan Just Yet

By: Chase Squires
Feb 23, 2015

FreeCollege_Thumb.pngWith President Barack Obama proposing free college tuition for all students, advisors may find clients asking if it's time to spend the family's 529 college savings plan on a vacation. College is going to be free now, right?

Well, no. At least not yet. And certainly not all of college.

The president, in his January State of the Union address, introduced a plan to pay for two years of community college for every student in the country through a program the administration is calling America's College Promise.

The American Association of Community Colleges (AACC) welcomed the concept with a news release, with AACC President and CEO Walter Bumphus, Ph.D., remarking, "This is an exciting day for the nation's community colleges."

But the association notes there's a long way to go.

Republicans, who control both houses of Congress, have panned the proposal, and AAAC's Senior Vice President for Government Relations David Baime said the association understands a proposal isn't law.

"The reaction from Congress has been pretty clear on this," Baime said. "It clearly has an uphill slog."

The idea of free college for high school graduates is similar to the offer of free two-year tuition by Tennessee and others. But there are differences, Baime said. The president's proposal is described as a "first dollar" plan, while Tennessee offers a "last dollar" plan.

The difference is the Tennessee plan, which saw more than 58,000 applicants last year, students apply for every available federal grant, and Tennessee makes up the difference.

The president's proposal is a "first dollar" plan, so students apply to the federal government for the entire amount. Funding the plan may depend on Republicans controlling Capitol Hill.

"Mr. President, you can't wave a magic wand and declare something free. Someone has to pay for it," said Sen. Rand Paul (R-Kentucky) on the social media platform Twitter.

Speaker of the House John Boehner (R-Ohio) called the offerings "unserious proposals" while House Education and the Workforce Committee Chairman John Kline (R-Minnesota) said, "The President is proposing yet another multi-billion dollar federal program that will compete with existing programs for limited taxpayer dollars."

Baime said AACC members have been discussing the president's proposal, but the association has not initiated a lobbying effort. A news release from the association applauds the proposal, but Baime said, "It's not a reality yet."

Bottom line: Don't let clients stop funding those college savings plans, because they may still need them. According to J.P. Morgan's annual College Planning Essentials guide, the cost of college tuition has risen 688% since 1983.

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