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Cheung: Plan for free community college should consider alternative funding

In his State of the Union speech last Tuesday, President Barack Obama didn’t address the controversial Keystone XL pipeline or even North Korea by name. He did, however, spend a good amount of time on education reform.

“I am sending this Congress a bold new plan to lower the cost of community college to zero,” Obama said in the State of the Union.

Here’s the catch: zero has a price. If community college should become free like the president plans, $60 billion in tuition will have to come from somewhere. And that $60 billion won’t even cover all the costs; the budget proposal for the plan says that figure will make up only 75 percent of tuition costs. The remaining 25 percent would fall on the states to crunch the numbers.

Granted, the government hopes to achieve free community college in 10 years. That means that in the coming years, Americans will only see incrementally more subsidies and tax credits, if Congress approves the plan.

Obama’s efforts at improving America’s surprisingly lagging education system are much needed. Ironically, instead of making education more accessible for Americans, the current proposal’s model for funding that $60 billion could be making costs of college even more expensive.



So here’s the plan: Obama hopes to pay for the free community college tuition by rolling back tax breaks on 529 education savings plans. Parents sending kids to college will use these plans to keep money they intend to use toward tuition costs. The money can be held and invested into a mutual fund for growth, much like a 401k retirement plan

As it stands, the federal government does not tax any growth in a 529 education savings plan — although these contributions are not deductible on tax return filings. The government also does not tax any withdrawals from a 529 account at times of tuition payment. In some cases, states also offer tax benefits.

These tax benefits make it easier for middle class families to put away savings intended solely for tuition, adding some comfort in a time where college tuition costs are at astronomical and unprecedented highs.

But the proposal for free community college hopes to fundraise money by requiring tax payments on 529 accounts. Estimates say the additional tax revenue could bring in $2 billion, which would be used to beef up the American Opportunity tax credit currently used to write-off costs for low and middle income families paying tuition bills.

In other words, making community college free means increasing college costs for other Americans. Some proponents of free community college claim that families with 529 accounts would likely have large enough of an income to survive a new tax.

And all things considered, the controversy around the tax proposal concerns funding for only a small fraction of the $60 billion needed to make community college free by 2025. Fundraising would have to come from other sources, which could come from budget cuts, reallocated funds or more tax reform.

In all fairness, Obama is addressing an important problem. With future generations riding on more skilled work in an ever increasing competitive job market, helping Americans get degrees is the only hope for increased social mobility. In Tennessee, Gov. Bill Haslam last year unveiled his own free community college plan to prop up a state that places 43rd in the nation in share of residents who’ve completed college.

But it seems counterintuitive for the Obama administration to solve the issue of expensive college by forcing the costs onto other Americans trying to save and pay for college. Cleaning up the proposal by paying for the price of “free” community college through alternative sources of funding would be the only way to ensure that college costs will be affordable for all Americans.

Brian Cheung is a senior broadcast and digital journalism and finance dual major. His column appears weekly. He can be reached at bkcheung@syr.edu and followed on Twitter @bcheungz.





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