College Savings Accounts, Even Small Ones, Critical to Low-Income Kids Making It to (and Through) Graduation

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Some 18 million students were enrolled in college this past semester, and although college attendance numbers have been slipping over the past five years, the increase that is likely to come in the next decade will be from students of color who live in low-income households where they are often the first in their family to pursue their education past high school.
For this growing group of undergraduates, getting into college isn’t the hard part — paying for it is. Average annual tuition at four-year public colleges is now $9,410 for in-state students and $22,890 for out-of-state students, while the average at four-year private colleges is $32,410 a year.

Those figures price out large numbers of students, with the result being that only 10 percent of students from low-income families graduate from college by their mid-20s and half of low-income students admit they are currently unenrolled because they can’t afford it, according to a recent study released by the Institute for Higher Education Policy and Prosperity Now (formerly the Corporation for Enterprise Development). Researchers believe that children’s savings accounts are a powerful tool to help combat these challenges and promote equity.

“For some [students], the full extent of the price of college is realized too late in their planning process to best leverage all the financial aid resources available to them,” wrote the authors of the report. “For others, the prices seems so prohibitive that earning a college degree is not even considered a feasible aspiration.”

The difference is tremendous, even when the savings are small. Children with college savings between $1 and $499 are three times as likely to attend college and four times as likely to graduate as those without any college savings, according to the study. Traditional 529 college savings plans, which shield growing contributions from federal and state taxes when the money is put toward college expenses, provide financial incentive for families to plan and save for their children’s education but largely benefit families who are already able to do so without additional supports.

A simple children’s savings account can dramatically increase students’ expectations for college because they have money invested for the intended purpose of higher education, the researchers say. When combined with community engagement strategies, such as college promise programs — designed to increase college attainment in particular areas, often with financial supports — and social services, a college-going culture develops in which more low-income students see college as an achievable goal and equity gaps in college access and affordability are narrowed for low-income families.

“It’s not like the account is paying for college itself, but the idea is that by saving a little, having more money when you’re ready to go to college, and having the knowledge that you, your family, and your community are investing in you to go to college, changes the equation for kids,” Carl Rist, senior director, children’s savings and senior advisor, asset building with Prosperity Now, told The 74.

Rist’s group directs field building, public policy advocacy, and consulting efforts to ensure that more than a million low-income students have access to children’s saving accounts.

“If we don’t find ways to pay with more generous Pell Grants and scholarship dollars … We need to find ways to engage [students] early on by saving but also supporting them with college promise programs that pay significant sources of dollars once [they] enroll,” Rist said.

In one case study, the Beyond Housing Community Liaisons, a community development organization in St. Louis, worked in 24 target communities and schools within the Normandy School District — Michael Brown’s school district — as part of its 24:1 initiative. The program connects families with social services and encourages participation in a college savings program after the community decided to address college readiness challenges as a priority.

(The 74: Should They Stay or Should They Go: Missouri Families in Michael Brown’s High School Face a Hard Choice)

Students are supported through their college and career with academic and financial coaching for long-term success, including mandatory financial education classes that determine eligibility for matching funds in seeded college savings accounts. The accounts start students out with predeposited money — $25 if students wait until high school to open one, and $500 if they start as early as kindergarten. The sooner families open college savings accounts, the more students receive in starter funds.

Beyond Housing successfully combined financial and social services for food, health care, clothing, shelter, and jobs by assessing the needs of families and children. As a result, families were able to open college savings accounts and spend more time thinking about how their children can access a college education and the mobility that it affords, less about paying for daily needs to survive. Since the 24:1 initiative started in 2009, students in the program have a college attendance rate of over 90 percent and a retention rate of over 80 percent.

“What’s truly at stake here is equity. And though we know that higher education is a pathway to the middle class, lower- and moderate-income families — those who truly stand to gain the most from a college education — are continually denied access simply because they cannot afford to pay,” Julie Ajinkya, vice president of applied research at the Institute for Higher Education Policy, said in an interview with The 74. “Just as we work to stem the tide of skyrocketing college costs, we must also design our financing systems to work for more students.”

For lower-income families, saving for college is a luxury, and due to escalating tuition prices, middle-income families also struggle to save and help their children pay. An unidentified Silver Spring, Maryland, mom interviewed for a 2015 Think Progress article said she planned to contribute as much as possible to her children’s education but expects them to largely finance it by working part time and borrowing.

“My husband and I will, of course, contribute as much as we can, but it will certainly be a combination of student loans and they will have to work and get good scholarships to make it a reality,” she said. “I commuted from my family’s home … I took out student loans and I worked on campus. It’s not easy, but it’s possible.”

Possible, yes, but is it entirely feasible? Student loan debt surpasses $1.3 trillion and disproportionately affects lower-income borrowers. And students who work more than 20 hours a week to support themselves through school often experience decreased academic success. Many experts and student advocates fear that Trump’s higher education budget proposal released last month and its plan to get rid of subsidized loans, the need-based loans that don’t accrue interest while the student is in school, will make the situation worse.

“Eliminating subsidized loans would increase the cost of college by thousands of dollars for many of the six million graduates who receive these loans each year,” the Institute for College Access and Success (TICAS) wrote on its blog. “The Congressional Budget Office estimates that eliminating subsidized loans would add $26.8 billion in costs to students over 10 years.”

Assuming that a student starts school in 2018–2019, will borrow the maximum subsidized loan amount of $23,000, and will graduate in five years, with current Congressional Budget Office interest rate projections, students will pay an additional $3,400 due to accrued interest according to TICAS’s analysis.

Enhanced universal college savings account programs may also benefit middle-class families who are often neglected in the college affordability discussion.

The best of kids from needy families can get college paid for, but in the middle there are good students but don’t have the deep kind of aid provided for students on the lower end of the spectrum,” Rist said. “A way to address that is through a national policy where every child gets an account with an initial deposit of $500 at birth. Low-income kids [would] get progressively more …  like a larger initial deposit and greater incentives to save. So you could benefit [kids who are the neediest] and kids in the middle who could use some support.”

Programs like Oakland Promise, which galvanizes local parents, students, teachers, and community leaders to connect with families and support their planning for post-secondary education, and Beyond Housing Community Liaisons are collaborative initiatives that leverage private and public dollars.

“The key to the future is making important investments in kids, whether it’s pre-K, public education, or this innovative strategy to help kids establish a small amount of savings and wealth to pay for college,” Rist said. “[College savings accounts with college promise programs and social services] are sustainable in the same way that Pell Grants are sustainable but will require public will and public policy [to maintain].”

(The 74: Franklin & Marshall’s Mission to Make College More Equitable Is Changing the Face of Higher Ed)

Regardless of where the dollars come from, investing in college access and affordability for low-income students is a smart move; research shows that college graduates make more money over time than those who do not attend college — an earnings advantage that generates greater local economic activity and fuels prosperity at national levels.

“Helping more students access higher education and earn degrees ultimately helps entire communities thrive,” Ajinkya said. “Some of the fastest-growing student populations — such as minority and first-generation students — struggle to access higher education. City and state leaders must be intentional in helping these students access and succeed in higher education and, in turn, cultivate prosperous communities.”

(The 74: Chan Zuckerberg, College Board Partnership Expands Personalization to Help Low-Income Students Go to College)

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