One of the many ongoing budget debates in the N.C. General Assembly swirls around the cost of higher education in North Carolina. It’s a shame that the legislature this year took away an incentive for families to save on their own for a college education.
The state is constitutionally bound to make a college education in the University of North Carolina system as close to free of cost as possible. With that in mind, the legislature funds the UNC system to the tune of about $2.5 billion a year – 12 percent of the state’s overall budget.
Yet, as anyone who follows the political discourse in Raleigh knows, UNC leaders say they need more resources to stay competitive with other colleges and universities both here and in other states. They argue also that limited funding from the state drives the need for tuition increases.
High tuition costs, in turn, drive up the amount of debt through student loans. If only there was a way to encourage students and families to save money for a college education before enrollment.
The state had such an incentive in place until this year – an income tax deduction for anyone participating in a college savings program called the 529 plan. Parents, grandparents and other family members could invest money into a 529 stocks and bonds fund with hopes it would grow to help pay for a college education for their children and grandchildren. To reward the discipline and sacrifice it takes to save money for higher education, the state allowed participants to deduct those savings when preparing state income tax returns.
Eliminating that deduction was one of the tax reforms passed by the General Assembly in 2013. It took effect in 2014.
You might think the loss of the deduction would have triggered a Moral Monday protest. But sadly, seven out of 10 Americans don’t even know what a 529 plan is, according to a survey sponsored by Edward Jones, a financial services company.
The tug of war for UNC funding isn’t going away anytime soon. We can’t help but think he state would be better off by restoring the 529 plan tax deduction and raising the level of awareness of its existence among North Carolinians.
Saving money for a college education is a smart plan, regardless. But the state could do a little more to encourage that discipline.