Personal Finance
Biden makes another push for tuition-free community college. It may work
When President Joe Biden unveiled the details of his Plan B for student loan forgiveness, he revealed that his hope to make some college free was not dead.
“I also want to make community college tuition free so you don’t need loans at all,” Biden said after including free community college as part of his $7.3 trillion budget for fiscal 2025.
Unlike loan forgiveness, free college is a better way to combat the college affordability crisis, some experts say — and although a federal effort has yet to get off the ground, it could have a good chance of securing widespread approval going forward.
“Student loan forgiveness is a Band-Aid,” said Ryan Morgan, CEO of the Campaign for Free College Tuition. “It’s not a permanent solution but it’s certainly better than nothing.”
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Critics have panned the president’s efforts on loan forgiveness for overstepping his authority while only impacting those graduates with existing education debt.
“Loan forgiveness is a snapshot in time in terms of a fix,” Morgan said.
Alternatively, free college appeals more broadly to those struggling in the face of rising college costs, rather than after the fact.
“If you remove cost as the barrier than everyone who wants to, and is qualified to go, can attend some sort of higher education program,” Morgan said.
“That makes it “a very popular bi-partisan issue,” he added.
And yet, the Biden administration’s plan to make community college tuition-free for two years was ultimately stripped from the Build Back Better Act in 2021.
However, while the White House turned its focus to student loan forgiveness, states have been moving forward with plans to pass legislation of their own to make some college tuition-free.
As of the latest tally, 35 states already have some type of program in place.
Most are “last-dollar” scholarships, meaning the program pays for whatever tuition and fees are left after financial aid and other grants are applied. In other words, students receive a scholarship for the amount of tuition that is not covered by existing state or federal aid.
The problem with free college
Critics say lower-income students, through a combination of existing grants and scholarships, already pay little in tuition to state schools, if anything at all.
“The reality is that there’s a very good chance you aren’t going to pay tuition,” said Sandy Baum, senior fellow at Urban Institute’s Center on Education Data and Policy. “That’s not really solving an access problem.”
Further, in most cases the money does not cover fees, books, or room and board, which are all costs that lower-income students struggle with, and community college may not be the stepping stone to a four-year school it is often believed to be.
In fact, just 16% of all community college students go on and attain a bachelor’s degree, according to recent reports by the Community College Research Center at Columbia University, the Aspen Institute College Excellence Program and the National Student Clearinghouse Research Center.
“It’s a really risky way to think you are going to save money because very few people go on to get a bachelor’s degree,” Baum said.
In addition, community college is already significantly less expensive. At two-year public schools, tuition and fees averages $3,990 for the 2023-24 school year, according to the College Board. Alternatively, at four-year, in-state public schools, that number is $11,260 per year and, at four-year private universities, it’s $41,540.
New Mexico’s program is ‘our gold star’
Among all state-based plans, the New Mexico Opportunity Scholarship Act has been hailed as the most extensive tuition-free scholarship program in the country — “that’s our gold star in terms of programs,” Morgan said.
New Mexico’s Opportunity Scholarship goes a step further than most by opening up access to returning adult learners, part-time students and immigrants, regardless of their immigration status, in addition to recent high school graduates. (The average scholarship recipient in New Mexico is under 25 years old, female and Hispanic.)
In New Mexico, the state aid is applied first, so federal aid and private scholarships can go toward books, room and board and childcare to help cover the total cost of going to school.
Since its inception in 2022, overall college enrollment has increased by nearly 7% in the state, reversing more than a decade of declines, according to Higher Education Department Secretary Stephanie Rodriguez.
That’s “telling us that students are ready to go to school, they want to be there and they want to reskill or upskill,” she said.
“It’s gratifying to see that the scholarship is doing exactly what it was intended to do,” Rodriguez added.
Richard Stephen | Istock | Getty Images
As Congress scrambles to avoid a government shutdown, the Senate is also poised to consider another bill that would increase Social Security benefits for some public workers.
But the bill, the Social Security Fairness Act, may undergo changes if some Senators’ efforts to add amendments are successful.
Per the original proposal, the Social Security Fairness Act calls for eliminating Social Security provisions known as the Windfall Elimination Provision, or WEP, and Government Pension Offset, or GPO, that have been in place for decades.
The WEP reduces Social Security benefits for individuals who receive pension or disability benefits from employment where they did not pay Social Security payroll taxes. The GPO reduces Social Security for spouses, widows and widowers who also receive their own government pension income. Together, the provisions affect an estimated 3 million individuals.
The bill has enthusiastic support from organizations representing teachers, firefighters, police and other government workers who are affected by the benefit reductions.
“You shouldn’t penalize people for income outside of a system when you’ve paid into it and earn that benefit,” said John Hatton, vice president of policy and programs at the National Active and Retired Federal Employees Association. “It’s been 40 years trying to get this repealed.”
The bill has received overwhelming bipartisan support. The Social Security Fairness Act was passed by the House with a 327 majority in November.
Preliminary Senate votes this week have also shown a strong bipartisan support for moving the proposal forward. On Wednesday, the chamber voted with a 73 majority on a cloture for the motion to proceed. That was followed by a Thursday vote on a motion to proceed that also drew a 73-vote majority.
Experts say the Senate may soon hold a final vote. It could proceed in one of two ways — with amendments that alter the terms of the original bill or with a final vote without any changes.
Amendments may include raising the retirement age
The Social Security Fairness Act would cost an estimated $196 billion over 10 years, according to the Congressional Budget Office.
Those additional costs come as the trust funds Social Security relies on to help pay benefits already face looming depletion dates. Social Security’s trustees have projected the program’s trust fund used to pay retirement benefits may be depleted in nine years, when just 79% of benefits may be payable.
Some senators who oppose the Social Security Fairness Act have expressed concerns about the pressures the additional costs would put on the program.
Sen. Rand Paul, R-Kentucky, who this week voted against moving the current version of the bill forward in the Senate, said this week he plans to propose an amendment to offset those costs by gradually raising the retirement age to 70 while also adjusting for life expectancy. Social Security’s full retirement age — when beneficiaries receive 100% of the benefits they’ve earned — is currently age 67 for individuals born in 1960 or later.
“It is absurd to entertain a proposal that would make Social Security both less fair and financially weaker,” Paul said in a statement. “To undo the damage made by this legislation, my amendment to gradually raise the retirement age to reflect current life expectancies will strengthen Social Security by providing almost $400 billion in savings.”
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As of Friday morning, a total of six amendments to the bill had been introduced, according to Emerson Sprick, associate director of economic policy at the Bipartisan Policy Center.
Some amendments call for replacing the full repeal of the WEP and GPO provisions with other changes.
One amendment from Sens. Ted Cruz, R-Texas, and Joe Manchin, I-West Virginia, would instead put in place a more proportional formula to calculate benefits for affected individuals. That change, inspired by Texas Republican Rep. Jodey Arrington’s Equal Treatment of Public Servants Act, has a lot of support from policy experts and the Bipartisan Policy Center, Sprick said.
Social Security advocacy groups have pushed for larger comprehensive Social Security reform that would use tax increases to pay for making benefits more generous.
“We want to help in making this happen, but our preference was for it to be part of a much larger Social Security reform,” said Dan Adcock, director of government relations and policy at the National Committee to Preserve Social Security and Medicare.
To be sure, if amendments are successfully added to the bill, it would have to go back to the House.
“We’re hoping that that doesn’t come to that, because that could complicate matters, depending on the timing of how what’s going on with the [continuing resolution]” to avoid a government shutdown, Adcock said.
Senate may proceed to final vote on original bill
Much of what happens next rests on Senate Majority Leader Chuck Schumer, D-New York, who could decide unilaterally not to allow amendments to be considered, according to Sprick.
Alternatively, Schumer could decide to allow for amendments in exchange for limiting the length of time spent on consideration of the bill, he said.
However, Sprick said he doubts Schumer will allow amendments at this point.
“The most likely scenario at this point is that Senator Schumer just runs out the clock, doesn’t allow consideration of any amendments, and they take a final vote either very late tonight or early tomorrow,” Sprick said.
While opponents of the bill may delay a vote, they won’t be able to stop a vote, Hatton said. Moreover, there’s reason to believe the leaders who have voted to advance the bill this week will also vote for it if and when it is put up for a final vote, he said.
“I’m still optimistic that this passes, and it’s more just a matter of when, not if,” Hatton said.
A few years ago, Wes Bellamy, 38, took stock of his investment accounts in preparation to buy a home in Charlottesville, Virginia. It was then that he noticed significant gains in his 401(k).
Although Bellamy, who is the chair of the political science department at Virginia State University, had been saving diligently for nearly a decade and making the most of his employer’s matching program, he said seeing his retirement account balance was “a pleasant surprise and a nice nest egg.”
Since then, his 401(k) balance has continued to grow. “I’m at $980,000 — I’m not at a million yet but I’m close.”
More millennials are 401(k) millionaires
Saving $1 million for retirement used to be considered the gold standard, although these days financial advisors may recommend putting away even more.
Millennial workers are still the most common generation to say they’ll need at least $1 million to retire comfortably, according to a recent report by Bankrate, and, for the first time, a larger share of younger retirement savers are reaching that key savings threshold.
The number of millennials with seven-figure balances has jumped 400% from one year ago, according to the data from Fidelity Investments prepared for CNBC.
Among this group, the number of 401(k) accounts with a balance of $1 million or more rose to about 10,000 as of Sept. 30, up from around 2,000 in the third quarter of 2023, according to Fidelity, the nation’s largest provider of 401(k) plans. The financial services firm handles more than 49 million retirement accounts altogether.
Generally, reaching 401(k) millionaire status only comes after decades of consistent contributions, making it a harder milestone for younger workers to achieve.
This year, positive market conditions helped boost those account balances to new highs. The Nasdaq is up 29% year to date, as of Dec. 19, while the S&P 500 notched a 23% gain and the Dow Jones Industrial Average rose more than 12%.
“Even shorter-term savers have done well because of significant market gains,” said Mike Shamrell, Fidelity’s vice president of thought leadership.
“If we continue to see positive market conditions, we could see not only the overall number of millionaires overall bump up over that threshold but also more millennials,” Shamrell said.
Whether savers benefit more from long-term savings efforts or a favorable investment environment, “the reality is, it’s a blend of both,” financial advisor Jordan Awoye, managing partner of Awoye Capital in New York, said.
Further, millennials — the oldest of whom will be 44 in 2025 — are nearing their peak earning years, he said, “which is making it more enticing to save for retirement.”
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Still, reaching the million-dollar mark “is not everything,” Awoye said.
Heading into a year of potential volatility, those balances will fluctuate, perhaps even dramatically. However, there is still plenty of time before millennial savers will need to access those funds in retirement. “You are likely not touching that money for 20 years. Even if [the market] goes up and down, stick to the script,” Awoye said.
“When you are retirement planning, you have to remember to tie it back to your North Star, which is your goal.”
How to become a 401(k) millionaire
Certified financial planner Chelsea Ransom-Cooper, chief financial planning officer of Zenith Wealth Partners in New Jersey, works with mostly millennial clients. She says she often encourages them to contribute more than what’s necessary to get the full employer match — even up to the maximum annual contribution limits for a 401(k) or IRA.
In 2023, only 14% of employees deferred the maximum annual amount into 401(k) plans, according to Vanguard’s 2024 How America Saves report. But that’s a missed opportunity, Ransom-Cooper said.
In 2025, employees can defer $23,500 into workplace plans, up from $23,000 in 2024. (The IRA contribution limit is $7,000 for 2025, unchanged from 2024.)
At the same time, employer contributions are climbing. Together, the average 401(k) savings rate, including employee deferrals and company contributions, rose to 12.7% in 2023, up from 12.1% the year before, according to the Plan Sponsor Council of America’s annual survey of 401(k) plans.
That’s made a big difference, Ransom-Cooper said. “There’s more money that can go into these accounts outside of the employee contribution, that can be really helpful to push these accounts higher and help people reach their retirement goals.”
While there is always the chance that a market downturn will take a toll on these balances in the year to come, the markets are up more than they are down, Ransom-Cooper said. “They can weather those tougher days in the shorter term.”
“Staying the course and keeping that longer term vision is really helpful,” she said.
Bellamy says his goal is to retire in another 20 years, before reaching 60. “Then, I’ll have another 15, 20 years to live my life freely as I want to.”
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