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Obama Takes Heat For Proposing To End College Savings Break

RENEE MONTAGNE, HOST:

And let's get to some domestic news we've been following - the high cost of college. President Obama rolled out some new ideas in his State of the Union address to help middle-class families pay for it, but he's taking heat for proposing the end of a popular tax break on college savings accounts. NPR White House correspondent Tamara Keith has more.

TAMARA KEITH, BYLINE: The college savings accounts are known as 529s. And in recent years, there's been a big push to get families to start saving early.

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UNIDENTIFIED NARRATOR: Remember how it felt the first time she slept through the night? Starting your child's plan with the College Savings Plans of Maryland can feel the same way.

KEITH: Here's how it works. Parents or grandparents put money in. It gets invested, and if all goes as planned, it grows right along with the child. Mary Morris, CEO of the Virginia529 College Savings Plan, says that when it's time for college, students can use the funds to pay for tuition, books and the other expenses.

MARY MORRIS: And then currently, as long as the distributions are used for qualified higher education expenses, they're never taxed.

KEITH: Tax-free - it's a pretty good deal and one that's been around since 2001. But the White House says fewer than 3 percent of families use these accounts, and 70 percent of the money in them comes from families earning more than $200,000 a year. President Obama's proposal would take away that tax benefit for future deposits. Morris, who also chairs the College Savings Foundation, says this would be a major blow to a program that helps millions of families save for college.

MORRIS: We are hearing those families speaking out and saying wait, this is - we've counted on this, and we're saving slowly month over month. Please don't take this benefit away.

KEITH: White House Press Secretary Josh Earnest says you can't think about the proposed changes to 529 plans in isolation. You have to look at the president's whole proposal which expands education tax credits to help middle-class families pay for college.

JOSH EARNEST: And when you consider that entire package of reforms, the tax cut that we're looking at for middle-class families is $50 billion.

REPRESENTATIVE LYNN JENKINS: I really think it was a mistake that somebody made over at the White House.

KEITH: Republican Congresswoman Lynn Jenkins from Kansas says the expanded tax credits the president proposed won't defray enough of the costs of college. And so saving in 529 accounts is still needed. Yesterday afternoon, she introduced a bill that would further enshrine the 529 program into law. Her co-author is a Democrat, and Jenkins expects bipartisan support. It wasn't meant to be a response to the president's proposal, but the mother of two college students says she can't figure out why the White House would suggest this change.

JENKINS: There's, like, 12 million accounts nationwide. This isn't a partisan issue. This is one that should get to the president for signature.

KEITH: With a GOP Congress, it is certainly more likely Jenkins's bill will get to Obama's desk than his own tax proposal. Tamara Keith, NPR News. Transcript provided by NPR, Copyright NPR.

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