[Congressional Record Volume 147, Number 18 (Thursday, February 8, 2001)]
[Senate]
[Pages S1220-S1221]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SESSIONS (for himself, Mr. Graham, Mr. Bingaman, Mr. 
        Frist, Mr. Gramm, Mr. Hutchinson, Mr. Murkowski, Mr. Breaux, 
        Mr. Shelby, Ms. Collins, Mr. Helms, Mr. Inhofe, Mr. Roberts, 
        Mr. Santorum, and Ms. Landrieu):
  S. 289. A bill to amend the Internal Revenue Code of 1986 to provide 
additional tax incentives for education; to the Committee on Finance.
  Mr. SESSIONS. Mr. President, I rise today to discuss the concept of 
prepaid tuition plans and why they are so critically important to 
America's families. As a parent who has put two children through 
college and who has another currently enrolled in college, I know 
firsthand that America's families are struggling to meet the rising 
cost of higher education. In fact, American families accrued more 
college debt in the 1990's than during the previous three decades 
combined. The reason is twofold: the Federal Government subsidizes 
student debt with interest rate breaks and penalizes educational 
savings by taxing the interest earned on those savings.
  In recent years, however, many families have tackled rising tuition 
costs by taking advantage of prepaid college tuition and savings plans. 
These plans allow families to purchase tuition credits years in 
advance. Families are able to pay for their child's future college 
education at today's price. Currently, 48 states have or are in the 
process of creating a tuition savings or prepaid tuition plan. These 
plans are extremely popular with parents, students, and alumni. They 
make it easier for families to save for college, while at the same time 
taking the uncertainty out of the future cost of college.
  My home State of Alabama was one of the first in the nation to 
establish a prepaid college tuition plan. Nearly 50,000 Alabamians are 
currently enrolled in the Prepaid Alabama College Tuition Plan. 
Families across the State of Alabama are setting aside a few dollars 
each month to pay for the future college education of their child. 
Alabama is not the only success story, 18,000 children have been 
enrolled in the College Savings Iowa plan.
  Mr. President, 2,500 families in Montana are saving for their child's 
college education through the Montana Family Education Savings Program:
  13,000 are enrolled in the Alaska Advance College Tuition Plan; 
100,000 are

[[Page S1221]]

participating in the Texas Tomorrow Fund; 7,000 children have accounts 
in the West Virginia Prepaid College Plan; 38,000 have joined the Maine 
Next Generation College Investing Plan; over 10,000 parents have 
contracts in the Mississippi Prepaid Affordable College Tuition Program 
for their children.

  As you can see, people across the country are wisely taking advantage 
of these plans. Congress has supported participating families by 
expanding the scope of the prepaid tuition plans and by deferring the 
taxes on the interest earned until the student goes off to college. I 
believe that we must go one step further. That is why today, I along 
with Senators, Bob Graham, Collins, Bingaman, Phil Gramm, Frist, 
Breaux, Shelby, Helms, Inhofe, Tim Hutchinson, Santorum, Murkowski, 
Landrieu, and Roberts are introducing the Collegiate Learning and 
Student Savings, CLASS, Act.
  This is a common sense piece of legislation that will make the 
interest earned on all education tuition savings plans completely tax-
free. Currently, the interest earned by families saving for college is 
taxed twice. Families are taxed on the income when they earn it, and 
then again on the interest that accrues from the savings. We strongly 
believe that this trend must no longer continue.
  In order to provide families a new alternative, the CLASS Act will 
provide tax-free treatment to all tuition savings plans. This 
bipartisan piece of legislation is sound education policy and tax 
policy that provides incentives for savings rather than bureaucratic 
solutions. It is a small tax break--estimated at less than $200 million 
over 5 years--but the CLASS Act will give families an extra incentive 
to be prudent savers for their children's education. Indeed, this small 
tax relief plan could produce billions in savings for college in the 
years to come. Many individuals have questioned whether these plans 
will benefit all types of students.
  Let me say this, it is wrong to assume that tuition savings and 
prepaid plans benefit mainly the wealthy. In fact, the track record of 
existing state prepaid plans indicates that working, middle-income 
families, not the rich, benefit the most from prepaid plans. For 
example, in 1996 families with an annual income of less than $35,000 
purchased 62 percent of the prepaid tuition contracts offered by the 
State of Pennsylvania. In the same year, 71 percent of the 600,000 
families participating in the Florida Prepaid College Program had an 
income of less than $50,000. It is clear this plan is helping middle 
income families save for college.
  In 1995, the average monthly contribution to a family's college 
savings account in Kentucky was $43. These families in Kentucky are 
putting a few dollars aside each month to save for their child's 
education. Tax-free treatment for tuition savings plans must become 
law. We passed this legislation as part of a larger tax bill last 
Congress. However, it was vetoed by President Clinton.
  President Bush articulated his support for this plan during the 
campaign. The time to act is now. This is not expensive, and the small 
cost will produce a huge benefit. I encourage my colleagues to work 
with me to push for passage of this common sense piece of legislation.
  Mr. GRAHAM. Mr. President, I am proud to join Senator Sessions and my 
other Senate colleagues in launching an initiative to increase 
Americans' access to college education. Today, we are introducing the 
Collegiate Learning and Student Savings Act. This bill extends tax-free 
treatment to all state sponsored prepaid tuition plans and state 
savings plans. This legislation also gives prepaid tuition plans 
established by private colleges and universities tax-deferred treatment 
in 2001, and tax-exempt status by 2005.
  Prepaid college tuition and savings programs have flourished at the 
State level in the face of spiraling college costs. According to the 
College Board, between 1980 and 2000, the cost of going to a four-year 
college has increased 115 percent above the rate of inflation. The 
cause of this dramatic increase in tuition is the subject of 
significant debate. But whether these increases are attributable to 
increased costs to the universities, reductions in state funding for 
public universities, or the increased value of a college degree, the 
fact remains that financing a college education has become increasingly 
difficult.
  In response to higher college costs the States have engineered 
innovative ways to help its families afford college. Michigan 
implemented the first prepaid tuition plan in 1986. Florida followed in 
1988. Today 49 States have either implemented or are in the process of 
implementing prepaid tuition plans or state education savings plans.
  Prepaid college tuition plans allow parents to pay prospectively for 
their children's higher education at participating universities. States 
pool these funds and invest them in a manner that will match or exceed 
the pace of educational inflation. This ``locks in'' current tuition 
and guarantees financial access to a future college education. In 1996, 
Congress acted to ensure that the tax on the earnings in these state-
sponsored programs is tax-deferred.
  Mr. Sessions and I believe the 107th Congress must move to make these 
programs completely tax free. Students should be able to enroll in 
college without the fear of incurring a significant tax liability just 
because they went to school. The legislation extends this same tax 
treatment to private college prepaid programs beginning in 2005.
  We believe that these programs should be tax free for numerous 
reasons. First, prepaid tuition and savings programs help middle income 
families afford a college education. Florida's experience shows that it 
is not higher income families who take most advantage of these plans. 
It is middle income families who want the discipline of monthly 
payments. They know that they would have a difficult time coming up 
with funds necessary to pay for college if they waited until their 
child enrolled. In Florida, more than 70 percent of participants in the 
state tuition program have family income of less than $50,000. Second, 
Congress should make these programs tax free in order to encourage 
savings and college attendance. Finally, for most families, these plans 
simply represent the purchase of service to be provided in the future. 
The accounts are not liquid, and the funds are transferred from the 
state directly to the college or university. The imposition of a tax 
liability on earnings represents a substantial burden, because the 
student is required to find other means of generating the funds to pay 
the tax.
  I am pleased to have this opportunity to join my colleagues in 
introducing this bill which makes a college education easier to obtain.
                                 ______