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Saving for schooling

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ANY concept that has been endorsed by not only the Reagan administration and the George Bush campaign, but Sens. Robert Dole and Edward Kennedy as well, deserves careful attention, if only as a political rarity. What all these parties have rallied around is some form of tax-free savings bonds to finance students' education.

The Republican proposals involve creation of a new line of tax-free savings bonds. The Kennedy bill would simply excuse students and their parents from the tax on ordinary, familiar Series E savings bonds, which is now due when they are cashed, if they were signed over to an educational institution.

This approach would avoid the bureaucratic expense of creating a new type of bond, and would rely on an investment instrument familiar to those of truly modest means, who are less likely to have access to sophisticated financial advice - and often unable to benefit from programs developed to serve what Washington understands to be the ``middle class.''

Five-year Treasury bills pay higher interest than savings bonds, however, and so those in low tax brackets might benefit more from a tax-forgiveness provision on T-bills. But T-bills have a higher minimum purchase, unlike the $25 minimum savings bond, and the less affluent are less likely to know how to buy them.

Exempting interest on T-bills from taxes would also cost the Treasury more than doing so for savings bonds, and the tax cost is the principal argument against any of these proposals. Not that the cost estimates for any of them are likely to be precise, but tax-free savings bonds are thought likely to cost the government $500 million a year for a decade or so, and then maybe twice that later on.

Do we want to think of more things for the federal government to spend money on? Probably not. But a case is there for seeing educational expense as an investment worthy of tax treatment different from that on consumption spending.


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