Crs Report for Congress - Saving for College Through Qualified Tuition (Section 529) Programs: October 19, 2004 - Rl31214 (Paperback)

Congress has tried to make higher education more affordable by providing favorable tax treatment to savings accumulated in qualified tuition programs (QTPs), also known as Section 529 programs. QTPs initially allowed individuals to save for qualified higher education expenses (QHEEs) at eligible institutions on a tax-deferred basis. With passage of P.L. 107-16, the benefit was enhanced temporarily by making qualified withdrawals from Section 529 programs tax free. One type of QTP, prepaid tuition plans, enables account owners to make payments on behalf of student beneficiaries for a specified number of academic periods/course units at current prices thereby providing a hedge against tuition inflation. Only states were permitted to sponsor prepaid plans until P.L. 107-16 extended sponsorship to eligible higher education (private) institutions effective in 2002. Due to the impact of the 2001 recession on state government support for higher education and of the stock market downturn on plan performance, some statesponsored prepaid plans have been modified or closed. States remain the sole sponsor of the more popular type of Section 529 program, college savings plans, which account for some 80% of the more than $51 billion in QTPs as of March 2004. College savings plans can be used toward a ...