College Savings Issues

Pursuant to a congressional request, GAO reviewed ways the federal government could encourage families to save money for their children's college educations, focusing on: (1) the income exclusion for using savings bonds to cover college expenses; (2) public awareness of and attitudes on education savings bonds; and (3) the nonrepayment rate for federal employees who have borrowed from the Thrift Savings Plan (TSP). GAO noted that: (1) few people have used the income exclusion to cover college expenses, probably because it only applies to bonds bought in January 1990 and later and investors tend to hold bonds for about 10 years; (2) most people who plan to save for college expenses are not aware of the special education savings bonds; (3) a Treasury market survey found that only 16 percent of people planning to save for college expenses believed that the income limits should be lowered; (4) Congress inadvertently lowered the income limits in 1993, but the House passed a bill to restore the limits to their originally planned levels; (5) over 90 percent of federal employees repay their TSP education loans in full; and (6) the relatively small size of unrepaid loans probably will not adversely affect the borrowers' retirement incomes.