Student Loans|The Rich Get College Subsidies While the Student Debt Debate Goes On
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As debt relief for student loan borrowers faces scrutiny, wealthy families can amass millions of dollars in tax-favored 529 college savings plans.
By Ron Lieber
Ron has been writing about 529 plans for at least 18 years and will start paying for college in about 18 months.
For months now, we’ve been in a nationwide debate over whether we should cancel up to $20,000 in student loan debt for tens of millions of people. Next year, the U.S. Supreme Court will weigh in on the hundreds of billions of dollars at stake — and talking heads will debate, yet again, who is deserving of help in America.
The student debt cancellation program excludes people with especially high incomes. But hiding in plain sight is another federal program — 529 college savings plans — that offers the biggest benefits to wealthy families.
With the right accounting and legal moves — ones that have never been subject to the kind of scrutiny that debt cancellation has faced — people with hundreds of thousands of dollars to spare can create 529 accounts that will end up holding millions of dollars. With some careful planning, no taxes will come due for most people as long as future generations use the money to pay for college (say, $84,000 a year at a private university like Duke), graduate school (hello, half-a-million-dollar New York University dental school) and any other related educational costs, including high-rise dorms and Apple laptops.
These maneuvers result in something that finance types have started referring to as “Dynasty” 529 plans. The accounts provide a marked contrast to the legacy of indebtedness that is emerging in families with fewer means. After all, it’s hard to save much in a 529 plan when you’re still paying off your own student loans as your children start college themselves. Then, those children borrow, too — and the parents may borrow even more to help pay the kids’ tuition.
To take a cleareyed view of who is getting what from the federal government in the realm of higher education, it helps to take a snapshot of how things work at this moment.
Slowly over time, we’ve decided that it is perfectly fine for two-thirds of college graduates to have borrowed tens of thousands of dollars along the way. “The choice we’re making is to shift the burden onto children,” said Victoria J. Haneman, a Creighton University law professor who has written about Dynasty 529 plans and the tax advantages they provide for the wealthy.
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