This blog post was originaly published on the National Community Tax Coalition's blog WorkForward.
The wrangling over the jump in student loan rates scheduled to take place on July 1st has placed renewed focus on making college affordable. This is critical time to be having this conversation because the value of a college degree is only increasing in the post-recession economy, but, so is the cost of acquiring it.
In 2010, for example, 88 percent of recent college graduates with a college degree were employed and, on average, earning $581 a week compared to only 64 percent of their peers with just a high school diploma who were earning $305.
Unfortunately, the families who would benefit most from this income boost can least afford this credential: in 2008, the cost of attending a public college for just one year exceeded half of the annual earnings of a family in the lowest income quintile.
For the bargain-basement cost of $6 billion, the federal government can freeze the current loan rate for one year. One year. Given the increasing rate at which students are borrowing increasing amounts of money to finance their education and recognizing the financial burden that will place on them for years, we need to redirect this conversation over student loan interest rates to one that answers a simple question: if the federal government is investing in access to a college education, are there better ways to do that than by subsidizing debt?
In the Asset Building Program of the New America Foundation, we answer with a resounding “Yes!” Chief among the multiple advantages to cultivating savings on the front end rather than financing debt on the back end is the unique role that savings play in building the expectations for college that are often as important as the resources for college. Research shows that low-income students can dismiss the idea of going to college as early as the 5th grade, believing the cost is out of reach. There is no amount of financial aid that can get a student in the door when he stopped seeing college in his future a decade earlier. Remarkably, just having a savings account in the student’s name, regardless of the amount in the account, can increase the likelihood of enrolling in college by 6 times. Having an account dedicated to a specific goal keeps that goal in the front of your mind and motivates you to find strategies to overcome obstacles to reaching that goal. Building expectations is a key piece to expanding college access, especially among low-income students.
So, what can we do to help families build saving for college? One strategy with proven results is getting kids started as early as possible down the path to college by giving them a savings account and a little money to get the savings growing. Versions of this approach have been implemented in recent years at the state and local level. Both North Dakota and Maine offer savings accounts to children from those states at birth, and in 2010, the City of San Francisco became the first municipality to create a universal college accounts for public school students. Known as Kindergarten to College (K2C), the program creates and seeds accounts with $50 for every student entering kindergarten in the City’s public schools and provides an additional $50 to students eligible for the National School Lunch Program.
Ultimately, however, only a federal policy can ensure that all children have access to this opportunity. The ASPIRE Act is a federal legislative proposal that incorporates these proven features and provides a model for implementing this approach on a national scale. Under this proposal, a savings account is set up for each child at birth and seeded with an initial deposit. This process takes places automatically, thus maximizing participation. At age 18, students could use the accounts for college as well as other purposes. Since the account would be issued to all children, this policy would circumvent barriers to account ownership that low-income families traditionally face. Matching contributions for children living in households with incomes below national median income would direct savings incentives to those families most in need of that support.
Making sustained progress at expanding college access and affordability is going to require some creative thinking and new approaches. We think these ideas are a good place to start.