In a world where collective student loan debt has now surpassed $1.6 trillion nationwide, proponents of free college say it’s time to stop the madness and make college tuition-free — at least for some of us. After all, the average graduate with public college debt now leaves school with more than $25,500 in loans to repay. And for many who attend private schools or earn an advanced degree, six figures of student loan debt is the norm.
While some say free college is nothing more than a pipe dream, it may not be as far-off as some would like to believe. In fact, the Biden administration has proposed making two-year schools tuition-free for everyone, then extending tuition-free education at public, four-year schools to students whose families earn $125,000 or less.
While free college may seem like a relief to some, others are left wondering how they can possibly plan ahead.
If college is going to be “free” in the future regardless, is there any point in saving for it?
Reasons To Still Save For College
According to the experts, the answer to this question is a resounding “yes.” When you really dive into the details of these proposals, you’ll find many reasons saving for college still makes a ton of sense.
Mark Kantrowitz, who is a student loan expert and author of How to Appeal for More College Financial Aid, says the first thing to remember is that it’s not necessarily clear a national free tuition program will happen, even if Democrats gain control of the Senate after January 5th, 2021.
The Senate requires a 60-vote supermajority to cut off debate, he says, so Republicans can block legislation with a filibuster. The only exception is a budget reconciliation bill, but such bills must reduce the budget deficit.
Kantrowitz says this means new spending will have to be offset through savings elsewhere, but that he doesn’t necessarily see that happening.
“Given all of Joe Biden’s priorities and limited opportunities for savings, he might have to prioritize his agenda and scale back some proposals,” says Kantrowitz.
And even if the legislation passes, the states will have to agree to provide their share of the funds.
Meanwhile, Fred Amrein of PayForED points out another important caveat. So far, free college proposals that have been discussed have only included free tuition, and it’s unclear at this point if fees are included. Further, families need to have a way to pay for room, board, and books for school — all expenses that won’t be included in a free tuition bill.
According to Eric Endlich, Ph.D. of Top College Consultants, this last point is particularly important since students who live at college will still have thousands of dollars of expenses in room and board, as well as books, travel, health insurance, and other fees.
“Families would do well to save and budget for these costs,” he says.
Endlich also says families should remember that free tuition proposals have only intended to apply to public colleges and universities so far. If a student is considering applying to private colleges or families hope to keep this option open, having some college savings set aside will make a big difference.
Finally, remember that free college proposals always come with an income cap that limits who can benefit. The Biden administration has proposed limiting free tuition at four-year, public institutions to students who come from families who earn $125,000 per year or less. If you’re in a career where a six-figure income is a real possibility, then you could be doing yourself a disservice by not planning ahead. After all, you may not earn close to $125,000 now, but a few years of climbing the corporate ladder could change that in a hurry.
Does It Make Sense To Save In A 529 College Savings Plan?
With free college at public institutions potentially on the table, some families are also rightfully worried about saving in a 529 college savings account. After all, money set aside in a college savings plan can only be used for qualified college expenses such as tuition and fees, books, housing, and technology equipment. If you save up tens of thousands of dollars in a 529 plan, it makes sense to wonder what you would do with that money if college tuition becomes “free.”
However, it’s important to note you do have options if you wind up having an overage in a 529 college savings account. For example, Kantrowitz points out that you can leave the money in the 529 plan if you don’t need it right away.
“There is no time limit on how long money can remain in a 529 plan, unlike a Coverdell education savings account,” he says. “This can be a great way of leaving a legacy for grandchildren and other descendants.”
You can also change the beneficiary to a sibling or another family member (even yourself), then use the money to pay for college expenses. College 529 savings plans can also be used to pay for graduate school, and you can even use the money to repay up to $10,000 in student loan debt per borrower.
Finally, you can take a non-qualified distribution and cash your account out, says Kantrowitz.
Just be aware that non-qualified distributions will be taxed at the recipient’s rate, plus a 10% tax penalty, plus possible recapture of any state income tax benefits attributable to the distribution, he says.
The Bottom Line
If you have the means to do so, then saving for college is almost always a smart move. Not only can you get some tax benefits from saving in a 529 plan in certain states, but you can prevent a situation where you’re scrambling to cover college costs at the last minute.
If you decide not to save and to count on government intervention instead, you could live to regret it.