Testimony: Support Middle Class College Savings Act

Duy Pham, public interest fellow at the Bell Policy Center, testified to the House Education Committee in support of HB16-1003.

The Bell Policy Center supports HB 16-1003 to modify state income tax deductions for contributions to Colorado’s 529 college savings plan based upon the taxpayer’s federal adjusted gross income. Access to higher education is key to opportunity and opens the door for individuals and families to join the middle class.

However, because of rapidly rising postsecondary education costs and student debt, paying for college has become a barrier for many hard-working families. Modifying the deductions taxpayers receive from Colorado’s 529 plan based on income will help low- to moderate-income families save for college, which will benefit our economy and help our state meet its workforce needs.

According to the U.S. Department of Education, college graduates with a bachelor’s degree earn an average of 66 percent more than those who did not attend college, making college the greatest driver of socioeconomic mobility in America.

Furthermore, Colorado ranks third nationally in terms of anticipated postsecondary training needs and it is projected that 74 percent of jobs in Colorado will require postsecondary education or training by 2020. However, despite the incredible importance and need of postsecondary education, many Coloradans are unable to enroll in higher education programs largely because of the significant rise in college costs.

In just five years, in-state tuition and fees at public four-year institutions in Colorado have increased by 26 percent after being adjusted for inflation. This does not take into account other significant costs of attendance. Additionally, over a 10-year period, the amount of debt Colorado students graduate with has increased by 53 percent. For low-to moderate income students, these costs are often insurmountable. Only one in 10 people from low-income families obtain a bachelor’s degree by age 25, while half of Americans from high-income families hold bachelor’s degrees by 25.

Although federal programs such as Pell grants help underprivileged students attend college, tax-based aid is one of the largest sources of student aid that disproportionately benefits higher-income families. In Colorado, 85 percent of the tax benefits from deductions for contributions to Colorado’s 529 plan went to those earning more than $100,000 per year, and 44 percent of the benefits went to those earning more than $250,000 per year. Additionally, research has shown that 13 out of 14 students whose families received tax breaks on tuition would have gone to college anyway.

Increasing the deduction for families making less than $250,000 per year will boost their current savings and provide an incentive for modest-income families to begin saving for college. Studies show that for low- to middle-income families, having less than $500 saved for college makes children three times more likely to enroll and four times more likely to graduate from college than students with no savings.

Encouraging more children to attend and graduate from college will have positive effects on Colorado’s economy and workforce. In a 2015 legislative report on the Skills for Jobs Act, the Colorado Department of Higher Education stated that Colorado must find a way to improve the rate at which minority and low-income families achieve postsecondary success in order to meet the needs of Colorado’s workforce. The Middle Class College Savings Act demonstrates a commitment to these families and ultimately helps Colorado’s economy.

We thank Representatives Pettersen and Young for bringing this bill to you today and thank the committee for the opportunity to share our thoughts with you.

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