[Congressional Record Volume 145, Number 70 (Friday, May 14, 1999)]
[Senate]
[Pages S5371-S5372]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. COLLINS:
  S. 1054. A bill to amend the Internal Revenue Code of 1986 to enhance 
various tax incentives for education; to the Committee on Finance.


                        savings for scholars act

  Ms. COLLINS. Mr. President, I rise today to introduce legislation, 
the Savings for Scholars Act, to help families

[[Page S5372]]

save for college expenses. This bill would make education IRAs and 
State tuition plans more effective vehicles for families to use in 
saving for postsecondary education. I want to thank Senator Roth and 
his staff on the Finance Committee for working with me and my staff in 
drafting this legislation. In the 3 years that he has chaired the 
Finance Committee, Senator Roth has been a true champion for all of us 
who place a tremendous value on educating our nation's children and 
young adults.
  When Congress created the education IRA 2 years ago, we took an 
important first step in the direction of encouraging families to save 
for their children's education. But, the law contains a very 
significant limitation--families cannot contribute more than $500 a 
year to these accounts. This restriction makes it difficult for a 
family to accumulate savings sufficient to pay the cost of a college 
degree. Even if parents start saving from the time their child is born, 
an investment in an education IRA of $500 a year, assuming an average 
annual return of 8 percent, will only yield about $19,000 when that 
child begins higher education. Today, the average cost of 4 years of 
higher education is about $30,000 at a public institution and about 
$75,000 at a private school. In short, the current limits are not 
nearly high enough to finance even today's college costs, much less the 
cost 18 years from now.

  Raising the maximum contribution to $2,000 will allow a family to 
accumulate at least as much as the current average cost of attending a 
private school. This is money that many middle-class families and their 
children otherwise would need to borrow; it is tens of thousands of 
dollars in student loans that would burden graduates with a mountain of 
debt. Most important, raising the education IRA contribution limit 
would make a 4-year college education more accessible and less of a 
financial challenge for middle-income families.
  In addition to increasing the education IRA contribution limit, this 
bill would make a technical change to remove a confusing inconsistently 
between the education IRA and the traditional IRA. The last date on 
which a contribution to an education IRA can be made is December 31 of 
any year. Traditional IRAs may receive contributions until April 15 of 
the year following the tax year. This bill changes the deadline for 
contributions to education IRAs to coincide with that of the 
traditional IRA. This modest change would eliminate a source of 
confusion that might cause a family planning to contribute to a child's 
IRA to inadvertently miss the deadline.
  The second part of my bill deals with qualified State tuition plans. 
These are tax-deferred plans, administered by the individual states, 
that allow families to prepay college tuition or to accumulate tax-
deferred savings for postsecondary education expenses. My bill makes 
two changes in the requirements of these plans that should make them 
more flexible and useful to families. The first is to require that all 
qualified State tuition plans allow at least three rollovers without 
any change in beneficiary. This change would guarantee that 
participants in one state's plan can transfer their assets to another 
state's plan. The need for this could be the result of a family moving 
from one state to another or of a change in a child's education plans. 
My bill will give greater flexibility in the choice of postsecondary 
education institutions to the beneficiaries of these plans.
  The bill also proposes one additional change to the qualified tuition 
programs--a change that will make the plans more attractive to 
families. Under current law, the assets of a plan can be rolled over to 
specified members of a beneficiary's family. This allows the plan's 
assets to be used by a sibling if the original beneficiary cannot or 
does not use the plan. However, the definition of a family member does 
not include first cousins. Thus, a parent of a single child could not 
transfer the benefits to a niece or nephew if his or her child did not 
use the plan. Perhaps more significantly, this change would make the 
qualified state tuition plan more desirable for grandparents. They 
could be assured that a plan established for the benefit of one 
grandchild could be transferred to any of their grandchildren.
  The final part of this bill corrects an unfair consequence of the 
interaction between the HOPE tax credits and the education IRA. 
Currently, a taxpayer is prohibited from claiming the HOPE tax credit 
in any year in which a withdrawal from an education IRA is made--
regardless of the total amount the taxpayer spends on education. This 
bill allows the HOPE tax credit to be claimed to the extent that the 
cost of education exceeds the amount withdrawn from the IRA. It does 
not allow a double benefit, but it does prevent one benefit--the IRA 
withdrawal--from canceling another benefit. It also eliminates a 
potential trap for the unwary taxpayer who may accidentally claim both 
benefits and, as a result, incur a penalty.
  Mr. President, investing in education is the surest way for us to 
build our country's assets for the future. We need to ensure that 
postsecondary education is affordable and that graduates do not 
accumulate crippling debts while attending school. Adopting this bill 
will help us to accomplish both of these goals. I urge my colleagues to 
support these efforts.
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