WASHINGTON -- In a show of bipartisan cooperation, Sen. Jeff Sessions (R-AL) was joined by Sen. Bob Graham (D-FL) today in introducing legislation that would exempt all college tuition savings plans, including Alabama's, from federal income taxes. The Collegiate Learning and Student Savings Act of 2001, or CLASS Act, would allow all state or private tuition savings and pre-paid plans to be tax-free. It also would allow private colleges and universities to establish pre-paid tuition plans.
"It is a small tax break, estimated at less than $200 million over five years, but the CLASS Act will give families an extra incentive to be prudent savers for their children's education," said Sessions, a member of the Senate Health, Education, Labor and Pensions Committee. "This tax relief plan could produce billions in savings for college in the years to come."
Graham said: "The federal government and Internal Revenue Service should do everything possible to encourage families planning for the future of their children. ... While the (CLASS) Act might reduce tax revenues in the short run, it will help add to the rolls in the future by allowing more young people broad opportunities in the information economy."
Co-sponsors to Sessions' bill include Sens. Bill Frist (R-TN), John Breaux (D-LA), Rick Santorum (R-PA), Frank Murkowski (R-AK), Jeff Bingaman (D-NM), Tim Hutchinson (R-AR), Pat Roberts (R-KS), Susan Collins (R-ME), Jesse Helms (R-NC) and Phil Gramm (R-TX).
The last Congress included a similar proposal by Sessions as part of a larger tax bill, but that measure was vetoed by President Clinton. President Bush, however, said during the presidential campaign that he supported Sessions' plan.
Under the CLASS Act, tax-free treatment would be extended to all plans; state savings and pre-paid tuition plans would become tax-free in calendar year 2002; pre-paid tuition plans established by private colleges and universities would be extended tax-deferred treatment starting in calendar year 2002, and private pre-paid tuition plans would also become tax-free starting in calendar year 2006.
Virtually every state has enacted pre-paid college tuition or college savings plans, which allow parents to pay prospectively for their child's tuition at participating institutions. The plans are tax deferred, meaning the IRS can't tax them until the student enrolls in college and begins to draw on the investment. The CLASS Act would make all such plans exempt from federal taxes.
There are more than 49,000 children enrolled in Alabama's pre-paid college tuition plan. According to the Alabama Treasurer's Office, the plan's trust fund has in excess of $530 million. Last year, the trust fund paid out more than $13 million in benefits for participants to attend college.
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