President Weighs Tax-Deferral Plan For College Costs

By Eileen White — January 26, 1983 2 min read
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Washington--The Reagan Administration is considering a proposal to permit parents to set up tax-deferred savings accounts to pay for their children’s college education, Administration sources said last week.

The accounts, which would function like Individual Retirement Accounts (ira’s), would be known as “education investment accounts,” the sources said.

The Administration is also weighing a plan to permit local school districts to use their federal Chapter 1 funds--allocated to compensate schools for the added costs of educating disadvantaged children--as part of a local “voucher” system, the sources said.

Under the plan, which would require Congressional approval, schools could award federal Chapter 1 (formerly Title I) grants to low-income parents who preferred to send their children to private or parochial schools. The average grant is expected to be between $400 and $500 next year.

Both the tax-deferred savings plan and the voucher plan have been presented to President Reagan, who was asked to mention the proposals in his annual State-of-the-Union message this week.

If Mr. Reagan accepts the proposals, they will be incorporated into the Education Department’s budget for the fiscal year 1984, which is scheduled to be delivered to the Congress on Jan. 31.

The budget, according to sources, will include recommended cuts of approximately 15 percent for education programs. The department’s total budget would be reduced from the current $15 billion to approximately $12.5 billion, according to one knowledgeable source.

The two major education programs, Chapter 1 and education of the handicapped, would escape major budget reductions, however, the source said.

Other components of the proposals being considered by the President include:

Education Department. The Administration has reopened the issue of how to reorganize the Cabinet-level department. The plan to turn the agency into a foundation,ved by Secretary of Education Terrel H. Bell and incorporated into the fiscal 1983 budget, may be abandoned this year, according to sources.

Tuition tax credits. A provision for the expected revenue loss to the federal budget if the Congress enacts tuition tax credits is likely to be included in the budget of the Treasury Department, sources said. Last year’s budget included only a brief mention of the Administration’s advocacy of tax credits for parents who pay private-school tuition.

Sub-minimum wage for youth. The Administration is likely to propose a plan to permit employers to pay one-half the current minimum wage to young people who are enrolled in vocational-education courses and work part time, the sources said.

A version of this article appeared in the January 26, 1983 edition of Education Week as President Weighs Tax-Deferral Plan For College Costs


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