When putting aside money for college, more North Dakotans stash their money elsewhere instead of using the state's own savings plan, the president of the Bank of North Dakota says. He hopes an income tax sweetener may change that.

"We feel that in order to provide additional savings, (attract) other participants … we need to offer enhancements," Eric Hardmeyer told the North Dakota House's Finance and Taxation Committee on Tuesday. "And probably the most significant enhancement that we're seeing in other states is a tax deduction."

Hardmeyer briefed committee legislators on Tuesday about legislation that would allow the state-owned bank to offer grants to low- to moderate-income North Dakotans who start an account. All savers would qualify for tax deductions.

The bill would allow single contributors to a college savings plan to take a state income tax deduction of up to $5,000. Couples could deduct as much as $10,000 in contributions.

Hardmeyer estimated the deductions could mean $200,000 less in North Dakota income tax collections over two years. The Finance and Taxation Committee did not take immediate action on the bill, and the House will vote on it later.

The legislation also would allow the bank to offer $250 grants to single contributors who make less than $20,000 annually and open new college savings accounts, Hardmeyer said. Couples who make up to $40,000 annually could qualify for a grant.

Don Forsberg, director of the Independent Community Banks of North Dakota, said the proposed incentives "will help different segments of the population to start investing earlier in their childrens' future."

Peggy Wipf, the financial aid director for North Dakota's university system, said the state's Board of Higher Education supports the proposal.

All 50 states offer so-called "529" college savings accounts, and North Dakota residents may open accounts in other states if the incentives are more attractive.

North Dakota's program, called College SAVE, offers participants six different options of investing in mutual funds run by Vanguard, of Valley Forge, Pa.

Hardmeyer said 31 states offer a state income tax deduction to college savers. North Dakota is one of the 19 that do not, and seven do not have a state income tax, he said.

Tax breaks, Hardmeyer said, are important to people who open the college savings accounts. He pointed out that North Dakotans have more money in other states' savings plans.

As of Nov. 30, 796 North Dakota residents had $6.9 million in education money socked away in North Dakota's plan, Hardmeyer said. In the meantime, at least 1,122 North Dakotans were maintaining accounts in plans sponsored by other states, with at least $7.2 million in savings, Hardmeyer said.

The grant money that would finance the $250 account-opening incentives would come from management fees the bank collects on college savings plans, Hardmeyer said. At present, the bank has more than $800,000 in fee income set aside.

Rep. Glen Froseth, R-Kenmare, wondered if grants to encourage new accounts wouldn't be better spent offering lower interest rates on student loans. The Bank of North Dakota is the state's largest provider of college loans.

"It seems like the interest on student college loans is quite excessive," Froseth said. "They owe their first five years after they graduate from college to the Bank of North Dakota, it seems like."

Hardmeyer said $800,000 wouldn't provide much of a break on student interest payments.

"I'm quite frankly not sure how far $800,000 would go, in any meaningful way, to reduce interest rates on student loans, when there's $500-some million that we alone have in our portfolio," Hardmeyer said. "I don't think it would be a real significant rate reduction."