Michigan exploring whether tax overhaul creates state deduction for private school tuition

A back to school kickoff at Shelby Middle School called Maxine's Closet offered community members in need a chance to get free school supplies, gently used clothes, and new backpacks, socks and underwear. Each child in a family received one notebook. Families were lined up outside of the school when the doors opend at 9 a.m. Friday. Chronicle photo by Kendra Stanley-Mills

With two children in Catholic school, and another three expected to enroll in the future, Aaron Wilkerson knows the pinch that private school can put on your wallet.

Which is why a recent provision in the federal tax legislation allowing 529 college savings plans - where money can be invested and grow tax free - to be used for private school tuition caught his attention.

"Private Catholic school is pretty expensive," said Wilkerson, 33, of Redford, who works as an information technology project manager. "I think for middle class families every little bit helps."

Throughout Michigan, there's undoubtedly more parents with the same sentiment.

And while it's unclear how many will either open or use an existing 529 plan to pay for private school, advocates say they hope it will provide a boost for the sector. Others, however, are less optimistic, saying the change will do little to put private school within the reach of low-income families who lack the financial resources to set aside savings in a 529 plan.

"It's a way for our families to take their hard-earned dollars and put them to work for them so they can make a Catholic school education more affordable," said David Faber, superintendent of Catholic schools at the Roman Catholic Diocese of Grand Rapids.

Michigan offers two state-sponsored 529 savings plans. But as of now, just one - the Michigan Education Savings Program - is eligible to be used to cover private school tuition, according to the Michigan Department of Treasury.

Money invested in MESP can grow free of federal and state income taxes if used for a qualified expense. There's also state tax breaks of up to $5,000 for individuals and $10,000 for joint filers in state taxes.

Treasury spokesman Ron Leix said the department is looking into how the federal tax law change applies to state tax benefits for MESP-users who want to pay for private school tuition using their 529 plan.

Robin Lott, executive director of the MESP, said her office has gotten a few inquiries from residents about using 529 plans to cover private school tuition since the change to the federal tax law. The Michigan Department of Treasury is expected to conduct an analysis to see how much revenue the state could lose if state income tax deductions apply to private school expenses, she said.

"I don't think anybody really knows until they put some numbers together and start doing some forecasting," Lott said.

She said she doesn't believe state lawmakers need to change Michigan law for 529-users to take advantage of state tax benefits if they use their plan to cover private, K-12 tuition.

Wilkerson said he already has a 529 plan through a private broker, but is thinking about opening a state-sponsored plan if he could receive a state tax break for money he invests to pay for private school tuition. He has two children - ages 6 and 5 - who attend St. Michael the Archangel Catholic Church and School in Livonia, and he says tuition totaled about $6,900.

He eventually expects to enroll his three other children - ages 4, 2 and 5-months - in Catholic school once they're old enough. Any financial reprieve would be welcome, he says.

"I know a lot of people leave every year from the school because they can't afford it," he said.

Private school advocates said the change to the 529 plans is unlikely to benefit low-income families who lack the financial resources to put aside savings for private school.

"Expanding 529 plans to K-12 education is a positive step for those already investing, but in order to assist low-income families with tuition costs more policy change is necessary at both the state and federal levels," said David Maluchnik, of the Michigan Catholic Conference. "Generally speaking, low-income families do not have the ability to set aside resources for use several years down the road.  Until viable solutions become available for lower income families it's unlikely there'll be significant movement with the enrollment needle."

Brian Broderick, executive director of the Michigan Association of Non-Public Schools, which represents about 380 schools statewide, said the tax-code change to the 529 plans is a step in the right direction.

But he, too, said the change wouldn't do much to help low-income families.

Creating a tax-credit scholarship program would have been more beneficial, he said. Under such a system, individuals and businesses can receive full or partial tax credits when they donate to nonprofits, which, in turn, provide scholarships for students to attend private schools.

Faber, the superintendent of the Roman Catholic Diocese of Grand Rapids, acknowledged that a 529 plan may be out of reach for some low-income parents. But he expressed optimism that the change will help middle-income families.

"Because we do serve a lot of low income families with scholarship programs, we were truly looking for more avenues to help our middle-income families," he said.

If you purchase a product or register for an account through a link on our site, we may receive compensation. By using this site, you consent to our User Agreement and agree that your clicks, interactions, and personal information may be collected, recorded, and/or stored by us and social media and other third-party partners in accordance with our Privacy Policy.