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College savings plans (529 and Coverdell tax-advantaged plans)

Health Factors: Education
Decision Makers: Government - State
Evidence Rating: Insufficient Evidence
Population Reach: 10-19% of WI's population
Impact on Disparities: Likely to increase disparities

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Description

College savings programs allow parents, grandparents, and others to invest dollars tax-free to save for future college expenses. According to the SEC, there are 2 types of “qualified tuition programs” 529 plans, a pre-paid tuition plan, and a college saving plans. All 50 states and DC offer at least one type of plan, and several private colleges and universities sponsor pre-paid tuition plans. These programs allow for prepaying or contributing to an account established to cover the costs of higher education at qualifying institutions (IRS).

Expected Beneficial Outcomes

Increased financial resources available for attending college

Evidence of Effectiveness

These plans can be helpful for setting aside college funds, but financial benefits are greater at higher incomes (NBER-Dynarski 2004). To date there is little evidence supporting these programs as a means to encourage or motivate education beyond high school, though they may reduce economic barriers for some potential students.

Implementation Examples

United States

Every state has at least one 529 college savings program, with maximum state tax deductions varying widely.

Wisconsin

Wisconsin state college savings programs were initiated in 1996 and serve over 225,000 future students; up to $3,000 per beneficiary per year can be deducted from WI state taxable income. EdVest and Tomorrow's Scholar are two such programs operating in Wisconsin.

Implementation Resources

IRS-Coverdell - Internal Revenue Service (IRS). Coverdell education savings accounts. Accessed on June 20, 2012
Webpage: http://www.irs.gov/individuals/article/0,,id=121452,00.html
US SEC-529s - US Securities and Exchange Commission (US SEC). An introduction to 529 plans. Accessed on June 23, 2012
Webpage: http://www.sec.gov/investor/pubs/intro529.htm

Citations - Evidence

NBER-Dynarski 2004 - Dynarski SM. Who benefits from the education saving incentives? Income, educational expectations, and the value of the 529 and Coverdell. National Bureau of Economic Research (NBER). 2004: Working Paper 10470. Accessed on June 20, 2012
Webpage: http://www.nber.org/papers/w10470

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Evidence Rating

Level of effectiveness based on a scan of academic literature and key recommendations of leading organizations.

  • Scientifically Supported Numerous studies or systematic review(s) with positive results
  • Some Evidence Research suggests positive impacts; further study may be warranted
  • Expert Opinion Recommended by credible groups*; research evidence limited
  • Insufficient Evidence Evidence limited or unavailable; further study warranted
  • Mixed Evidence Evidence mixed; further study warranted
  • Evidence of Ineffectiveness Research consistently shows program is detrimental or has no effect

Although many policies and programs are recommended by credible groups, we apply the rating ‘expert opinion’ only when policies are recommended but limited scientific evidence of effectiveness is available.

* The American Heritage Dictionary defines credible as 'capable of being believed; plausible.' and 'worthy of confidence; reliable.' To be considered an 'expert recommendation,' policies and programs must be recommended by one or more organizations that are recognized for their impartial expertise in the area of interest and have limited evidence available.

Potential Population Reach

Portion of Wisconsin's population likely to be reached by a policy or program if implemented statewide, based on its characteristics (e.g., target population(s), geographic limitations, and potential implementers).

<1%   20-49%
1-9%   50-99%
10-19%   100%

Potential Population Reach

Portion of Wisconsin's population likely to be reached by a policy or program if implemented statewide, based on its characteristics (e.g., target population(s), geographic limitations, and potential implementers).

<1%   20-49%
1-9%   50-99%
10-19%   100%

Potential Impact on Health Disparities

Likely impact of a given policy or program on racial/ethnic, socioeconomic, geographic or other disparities in Wisconsin based on its characteristics (e.g., target audience, mode of delivery, etc.) and best available evidence related to disparities.

  • Likely to decrease disparities
  • No impact on disparities likely
  • Likely to increase disparities