Parents can now use Louisiana’s education savings program to help pay K-12 tuition  

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By Wilborn P. Nobles III

wnobles@nola.com,

NOLA.com | The Times-Picayune

 

Gov. John Bel Edwards has signed legislation into law that takes advantage of a provision in the federal tax cut bill to expand Louisiana’s education savings program. The law aims to give parents of public and private school students an opportunity to save money not just for college, but also for elementary or secondary school tuition.

 

The new law builds upon the existing 529 college savings plan, known in Louisiana as the Student Tuition Assistance and Revenue Trust, or START. Up to now, the plan lets parents open an account to save for a child’s future higher education expenses.

Under the GOP tax bill signed by President Donald Trump late last year, states can now let families create savings accounts for K-12 school education. The new tax law also lets a family withdraw a certain amount of money tax-free depending on how much is in the account.

 

Act 687, which Edwards signed into law May 30, creates the Louisiana Student Tuition Assistance and Revenue Trust Kindergarten Through Grade Twelve Program, or START K12. Parents can use a START K12 account to save for expenses related to enrollment or attendance at a public or private elementary or secondary school in Louisiana. Families are allowed to withdraw no more than $10,000 per tax year, per beneficiary. 

Similar to START accounts, parents can direct their employer to deposit a share of their paycheck directly into a START K12 account.

There is one big difference between START and START K12 accounts.

START K12 accounts do not exempt a portion of annual deposits from an account owner’s taxable income. START accounts do, up to a point. Individual filers can save up to $2,400 tax-free, while up to $4,800 is tax exempt for joint filers.

START K12 accounts do not carry a similar exemption because lawmakers in Louisiana are only permitted to write tax exemptions into law during regular legislative sessions every other year. Bills creating new tax exemptions are not allowed during even-numbered years, like 2018.

Other things to know about the new START K12 accounts include:

• There are no rollovers between accounts.State law prohibits any transfers or rollovers from a START account to a START K12 account. 
• Savings have to be used within 5 years.Any funds in a START K12 account that have sat unused for any five-year period after the beneficiary’s 20th birthday will be presumed abandoned.
• You can use START savings from 2017 to pay for elementary or secondary school tuition.The new law allows parents to withdraw a one-time disbursement of funds from a START account during the upcoming school year in order to pay tuition at an elementary or secondary school. Parents can only withdraw money that was deposited prior to Jan. 1, 2018. Disbursements cannot exceed $10,000 and will not include any interest that may have accrued.

 

Louisiana’s Legislative Fiscal Office estimates the law will cost the state’s Office of Student Financial Assistance about $265,000 to implement, mostly one-time programming costs and additional staffing and supply expenses. LOSFA will also update the START website to include information on saving for K-12 education, according to the law’s fiscal note. 

 

The new law could benefit thousands of Louisiana parents who chose to — or seek to — enroll their children in private schools. Data released last October by the Louisiana Department of Education showed 722,666 students are enrolled in public schools statewide. By comparison, roughly 140,000 students statewide are enrolled in private schools.

 

Sending a student to a private school, like Louise S. McGehee School in the Garden District, can cost parents as much as $20,000 a year.

 

Costs can stack up for public school families, too. The annual Backpack Index reported found families in eight states, not including Louisiana, could expect to spend roughly $662 on average for supplies and activities fees for an elementary school student enrolled in public school. The Backpack Index, which analyzes costs in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, West Virginia and Wisconsin, does not include the cost of uniforms, which are required at nearly every New Orleans-area school. 

 

The addition of a new education savings account in Louisiana comes as more parents invest in savings options for students. The START program has seen significant jumps in enrollment, from 2,966 accounts in 2000 — about $3.9 million in deposits total — to 56,204 accounts and more than $718 million deposits in 2016, according to Louisiana Treasurer John Schroder’s website. 

 

Lawmakers could move as early as next year to make START K12 deposits tax exempt, similar to START accounts. 

That option is certainly “viable,” especially for parents who choose to send their children to private school, said Nat Malkus, deputy director of education policy for the right-leaning American Enterprise Institute. Malkus noted private school parents may not be taking advantage of “a fully free public education,” but they still wind up paying for public schools through income taxes.

 

Malkus said the state’s private schools and Catholic schools are likely to lobby hard for the tax break. He hopes Louisiana lawmakers will proceed with caution, noting any tax break reduces the state tax base.

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Wilborn P. Nobles III is an education reporter based in New Orleans. He can be reached at wnobles@nola.com or on Twitter at @WilNobles.