Saving for College and the Tax Code: A New Spin on the "Who Pays for Higher Education?" Debate (review)

Saving for College and the Tax Code: A New Spin on the "Who Pays for Higher Education?" Debate, by Andrew Roth, Vice President of Enrollment at Mercyhurst College, sheds light on an increasingly common mechanism for financing the costs of higher education: state-sponsored, tax-advantaged college savings plans. Roth includes three types of programs under this umbrella: prepaid tuition plans, college savings plan trusts, and college savings bonds. The book is based on Roth's dissertation, completed under the direction of D. Bruce Johnstone, Distinguished University Professor at the Graduate School of Education at the State University of New York at Buffalo, and is organized into seven chapters, three appendices, bibliography, and index.

This book is an important contribution to the higher education finance literature for at least four reasons. Perhaps most importantly, Roth provides an innovative, policy-relevant conceptual framework for determining who pays for state-sponsored, tax-advantaged college savings plans. Stressing that financing the costs of higher education is a shared burden, Roth develops a systematic approach to rank each state's program along a "public-versus-private responsibility" continuum. The ranking is based on the degree of "publicness" in terms of the type of program offered, whether the state guarantees the investment, minimum and maximum program deposits and account balances, whether the state provides a supplemental contribution, the nature of the state's tax treatment of contributions and account earnings, and the state's treatment of account earnings in determining eligibility for state-sponsored financial aid. While the specifics of the ranking are unique to state-sponsored, tax-advantaged college savings plans, the notion of considering the relative public-versus-private responsibility for paying the costs of higher education may be useful for understanding other higher education finance policies.

Second, the analyses, based on qualitative research methods, show that the distribution of state-sponsored, tax-advantaged college savings plans is skewed toward the private end of the public-versus-private responsibility continuum. As Roth observes, the finding that these programs reflect a greater emphasis on the private than the public responsibility for paying the costs of higher education is consistent with other recent trends in higher education finance, including the shift from grants to loans in the predominant type of financial aid that is awarded and the decline in the proportion of the total costs of higher education that is covered by state and local appropriations. What is new is his conclusion that, for these programs, "private" means "parental." Roth speculates that this "anti-generational burden shifting" may be a response to concerns about students' growing indebtedness and observes that this characteristic reflects a bias toward traditional patterns of college enrollment.

Third, despite the phrase "tax code" in the title, the book provides clear definitions of the characteristics of these complex programs in nontechnical language. A mini-case study of the implementation and adoption of these programs in one state (Pennsylvania) is particularly instructive. This easy-to-understand information is timely, given recent program growth. Roth reports that, although states began to implement prepaid tuition plans in the middle and late 1980s, growth in state-sponsored tax-advantaged college savings plans stalled until tax liability issues were resolved in the mid-1990s. At least in part because of federal tax advantages established under IRS Section 529, growth in these programs, particularly college saving trusts, surged during the mid- to late-1990s. In 1999, 39 states had programs in place and 3 states had programs pending.

Finally, although the tables are not "pretty" and, at times, contain information that is difficult to reconcile across tables or with the text, Roth provides a picture of the "national landscape" of these programs as of 1999...