ERIC Number: ED484240
Record Type: Non-Journal
Publication Date: 2004-Jul
When Saving Means Losing: Weighing the Benefits of College-Savings Plans. New Agenda Series. Volume 5, Number 2
Ifill, Roberto M.; McPherson, Michael S.
Lumina Foundation for Education
Since the early 1980s, college tuitions have soared, and state and federal governments have sought new ways to help students and families meet the costs of attendance. Annual state and federal appropriations to traditional student aid programs have more than doubled in the past two decades. In addition, the federal government created the Hope Scholarship and Lifetime Learning tax credit programs, and state governments created prepaid tuition plans and college-savings plans. These state savings plans, called "529 plans," are used by many families to help pay for college. However, because of the way funds invested in the different plans are treated by traditional financial aid programs, participation in them can affect eligibility for scholarships, grants and loans. Depending on the details, an increase in savings in a 529 plan may result in a dollar-for-dollar decrease in eligibility for need-based grant aid or it may result in no decrease at all. This paper describes the ways in which this might happen for different groups of students at different types of institutions. One of the things families should consider in deciding whether to invest in a 529 plan, some general financial savings plan (such as a mutual fund), or a savings account in a son's or daughter's name is the interaction between the level of accumulated assets and the need-based financial aid system. In general, less aid will be available to families who accumulate more assets. The precise relationships vary enormously, however, depending on the savings instrument chosen, the family's level of income and wealth, the cost of attendance at the chosen college, and the details of that institution's financial aid policies. This guide was written to assist three important groups: (1) Families, as they consider their savings options; (2) Colleges, as they consider how to treat these accumulated savings in their own financial aid policies; and (3) Policy-makers, as they consider both federal student aid policy and federal tax policy.
Descriptors: Scholarships, Eligibility, Federal Government, Paying for College, Tax Credits, Student Financial Aid, Financial Aid Applicants, Student Needs, Needs Assessment, Family Income
Lumina Foundation for Education, P.O. Box 1806, Indiannapolis, IN 46206-1806. Tel: 800-834-5756 (Toll Free); Web site: http://www.luminafoundation.org.
Publication Type: Information Analyses
Education Level: Higher Education
Audience: Parents; Counselors; Administrators; Policymakers
Authoring Institution: Lumina Foundation for Education, Indianapolis, IN.
Grant or Contract Numbers: N/A