House Bill Would Let Students Pay Off Loans With 529 Plans

The legislation also would encourage companies to help employees save for college or for disability care via tax incentives

Two members of Congress have introduced a bill to boost savings plans for students.

Rep. Lynn Jenkins, R-Kansas, and Rep. Ron Kind, D-Wis., proposed H.R. 529, the 529 and ABLE Account Improvement Act, to encourage more savings in tax-advantaged 529 college plans and ABLE (Achieving a Better Life Experience) accounts for individuals with disabilities.

This bill aims to get employers to contribute to 529 plans and removes penalties for using funds in these plans to pay for loans. “This bipartisan, common-sense bill will continue to strengthen 529 plans, an increasingly popular college savings plan, so all students will have the opportunity to continue their education and achieve their dreams,” said Jenkins in a statement.

“By creating incentives for parents to invest in tax-free 529 college savings plans, like an employer-matching program and the ability to use the money to pay for educational tools, we are leveling the playing field for hardworking Wisconsin parents and students,” explained Kind, in a press release.

The 529 and ABLE Account Improvement Act provisions is structured to:

  • Encourage employers to contribute to 529 college savings plans and ABLE accounts through tax incentives, which also aid employer startup costs for these accounts.
  • Remove penalties for using 529 funds to pay student loans and contribute to charity.
  • Repeal an IRS interpretation of a rule that restricts the amount of times a family can redirect the investment of their 529 or ABLE accounts.

“As a mother of two, I understand, firsthand, how important it is to start saving for our children’s education," Jenkins added. "That’s why I, along with Congressman Kind, introduced a bill to expand 529 plans and allow hardworking families to better plan ahead for the high costs of college.”

Kind says that “far too many hardworking Wisconsin families [are] feeling the pinch when it comes to affording to send their children to a university or technical college,” making it important for legislators to take action and “help ease the burden.”

Assets in 529 plans stood at more than $250 billion in 2015, according to the College Savings Plans Network, with about $25 billion being invested in new accounts each year. 

--- Check out 16 Best & Worst 529 College Savings Plans of 2016: Morningstar on ThinkAdvisor.

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