WASHINGTON – Garry and Sharon Voith paid more than $54,000 to Maryland’s prepaid college tuition program last year to cover future tuition costs for all three of their children.
Besides the peace of mind from knowing that they had paid for the college education of their kids — who are now in elementary through high school — the Pasadena couple got a one-time $2,500 tax credit.
But under a bill signed into law last week by Gov. Parris Glendening, the Voiths and other prepay families will now be able to deduct $2,500 per child per year up to the total value of their tuition “contract.”
“We were interested in it for a while because other states that we lived in had these programs,” Mrs. Voith said. “This was an extra bonus. It makes it that much sweeter.”
State officials hope the new tax credits will boost the lagging number of Maryland Prepaid College Trust enrollees from the current 1,102 to 10,000 before this year’s enrollment period ends June 10.
The program allows families to lock in current tuition rates at Maryland’s public colleges by giving the state money now, in monthly, annual or lump sum payments. When it comes time for the kids to go to college, their in-state tuition is already paid or they can apply the money toward tuition at a private or out-of-state college.
Under the new law, families can get an income tax credit for money they put in the college tuition program, up to $2,500 per year for each child they buy a contract for. Those who pay a lump sum for full tuition — as the Voiths did — can now deduct up to $2,500 each year until the total amount of prepaid tuition has been reached.
The law will be retroactive to tax year 1998 to include families like the Voiths, the first to family in Maryland to make lump sum tuition payments for more than one child.
“There are two major things you want when you get married — to buy a home and send your kids to college. It’s such a load off to know that it’s [college tuition] paid for already,” Mrs. Voith said. “People always think that college is down the road and then their kids hit high school and then they say, ‘Oh no!'”
Joan E. Marshall, executive director of the Maryland Prepaid College Trust said the plan allows parents to “pay now rather than borrow later.”
“It’s a big bill when it hits. It’s a major mind shift to pay early, but it’s a huge financial savings in the end,” Marshall said.
According to a national study released Wednesday by the College Savings Plan Network, 80 percent of families said it is important to save for their children’s college education, but it is difficult to do so. The survey said 73 percent are currently saving toward that end.
Nationally, over $3 trillion in tuition payments have been made on behalf of 1 million students to state college savings programs like Maryland’s. There are 44 states that offer pre-paid tuition or savings plans or both.
“The message [of the study] is that people are struggling and either going into debt to pay a loan or trying to save in a sporadic way,” said Mississippi State Treasurer Marshall Bennett, chairman of the College Savings Plan Network. “For most, it was a high priority to save, but they didn’t know about the tax advantages and availability of these programs.”
Marshall said that representatives of the Maryland Prepaid College Trust are going to every state school district this spring to promote the program and tout the new tax benefits before this year’s enrollment period ends. The enrollment period began Feb. 10 and ends June 10.
Officials said Maryland got off to a bad start when the program began last year, because the state did not have a full enrollment period, as it does this year, and there was very little opportunity to market the program.