Source: United States House of Representatives – Congresswoman Debbie Lesko (AZ-08)
WASHINGTON, D.C.—Today, U.S. Congresswoman Debbie Lesko (AZ-08) introduced the Student Aid and Tax-Advantaged Accounts Reform (STAR) Act to help families save for higher education for their children by reforming 529 plans and retirement accounts, such as the Individual Retirement Accounts (IRA) and 401(k)s.
“In recent years, the student loan debt crisis has impacted individuals and families, and many are struggling to make payments on their loans,” said Congresswoman Lesko following the introduction of the bill. “My bill addresses this crisis without having to utilize taxpayer funds for costly bailouts. I’m hopeful this legislation can lessen the burden on America’s families and help parents finance their children’s education more effectively.”
This legislation would change the Free Application for Federal Student Aid’s (FAFSA) Expected Family Contribution (EFC) formula to better fit the needs of families with multiple children by subtracting all sibling 529 plans owned by parents from the FAFSA EFC formula calculation. This change makes financial aid eligibility more accurate for each prospective student.
The bill also includes a House companion to the Higher Education Loan Payment and Enhanced Retirement (HELPER) Act (S. 2962) that was introduced by Senator Rand Paul (R-KY). This portion changes tax-advantage retirement accounts, such as IRAs to allow borrowers, parents, and grandparents to pay off their student loans using funds from these accounts. Under this legislation, individuals could take, tax and penalty free, up to $5,250 from their 401(k) or IRA annually to pay for college or to pay back student loan debt.
The concept for the STAR Act came from Lesko’s constituents, Justin and James Duncombe, financial planners and leading experts in helping families understand how to afford sending their children to the college of their choice. While helping families, they found many aspects of paying for higher education to be unfair, and they set out to work with Congress to make some meaningful changes.
“The changes in the STAR Act will lower what families are expected to pay, giving them more access to scholarships and need-based aid that does not have to be paid back,” said Justin and James Duncombe. “This will lower families’ out of pocket cost for college and lower the need for loans. We strongly support this act.”
The bill also received an endorsement from the University of Arizona College Republicans.
“The STAR Act has been one of the few bills written in modern history that addresses the student debt crisis in a reasonable, prudent, and effective manner. As of writing, there is over $1.6 trillion in outstanding student debt, and the STAR Act takes several steps to addressing this pressing problem that effects countless students I know,” said University of Arizona College Republicans President, Alton Zhang. “One of the main barriers for students is accessibility, especially for those who are in large families. Before, the FAFSA was unfairly biased against students who had several siblings, forcing families to compete with themselves over financial aid. With the STAR Act’s amendment to the EFC, more families will be able to send students to college, with a burden off their shoulders. Another hurdle to pass is that students often do not have the flexibility to pay off their student loans. With the STAR Act, it would allow students higher tax credits, removes the cap on interest deductions, and permits family members, spouses, and the students themselves to withdraw from their retirement plans to make payments for their student loans. The STAR Act opens up opportunities for students from every corner of America. The student loan crisis is a crisis mainly because of the numerous roadblocks that prevent students from paying off their debts. The STAR Act addresses those roadblocks, freeing students so they can take the road to success, happiness, and freedom.”