GROWING INTEREST IN CSAS CSAs are gaining traction around the country, not as a fad or a merely interesting alternative but as a potentially powerful tool with which to improve educational attainment and make existing institutions—K-12 schools, universities, the financial aid system—work better, especially for disadvantaged students.
In the absence of passage of national CSA policy, some states and localities have developed their own children’s savings initiatives, including programs that incorporate elements of CSA design into state 529 college saving plans. While the details vary, these CSA-style investments in children’s futures include publicly-funded initial contributions and matching contributions for low-income savers, opening accounts for children who reach specific educational milestones (such as kindergarten enrollment), and experimenting with school-based savings and financial literacy initiatives (Goldberg, Friedman, and Boshara, 2010). North Dakota, for example,
provides a $100 grant for any newborn in the state, provided that the $100 is matched by a private contribution before the child’s fourth birthday.6 Enacted in 2010, Nevada’s Silver State Matching Program provides a 1:1 match on contributions for households earning annual incomes below $41,400 and a 50% match up to $300 per year for households earning annual incomes between $41,400 and $61,950. The Alfond Challenge automatically opens a 529 account with an initial deposit of $500 for any parent of an infant in Maine. A number of other states are in the planning stage for beginning a CSA in the next year or two. In other parts of the country,
school districts, counties, and municipalities are also stepping into the breach. San Francisco, California, became the first locality in the United States to provide “opt out” college savings accounts to all enrolled kindergarteners, in 2010.7 Cuyahoga County, Ohio, began a similar effort in fall 2013, specifically citing as a rationale for their investment the potential for improved educational outcomes by helping families and students finance college through savings.8 Collectively, these innovations are helping thousands of lowincome students, while testing different policy mechanisms and strengthening the case for broader CSA implementation. Further, in the last several years, the Department of Education (ED) has shown interest in validating CSAs linked to children’s academic performance. In 2010, ED, the Federal Deposit Insurance Corporation (FDIC), and National Credit Union Administration (NCUA) established a new partnership to increase financial literacy, access to federally insured bank accounts,
and savings among students and families across the country.9 The next year ED announced an invitational priority as part of the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP).10 In 2012, ED announced a new college savings account research demonstration project implemented within the GEAR UP program.11 However,
it was canceled when administrative challenges prohibited state GEAR UP programs from initiating projects. This attempt by ED demonstrates their desire for a validation study. It also underscored barriers in bringing CSAs to scale at the time. Since that time, city, county, and statewide CSA programs have been started, as described above, making a validation study possible. Further, entities administering CSAs now recognize the need for a validation study that tests the underlying process model and addresses question of of how, when and with whom CSAs work so that future programs can be tailored to address specific needs.
Significantly, despite a lack of incentives, low-income households that save for college save a higher percentage of their incomes than do wealthy families (Sallie Mae, 2013). Still, low-income families seldom manage to accumulate enough assets to finance higher education, so their children typically must shoulder significant student debt to enroll in college. Families that earn less than $35,000 per year possess only a median of $2,000 in college savings (Sallie Mae, 2009). If saving reinforces the idea that going to college is a viable option, and if believing that one is going to college increases engagement in schoolwork and time spent on homework (and hence academic outcomes) then, as a nation, the United States can only reap the full potential effects of CSAs when they are structured so as to help families—all families—accumulate assets early enough to shape students’ educational trajectories, and in amounts great enough to finance at least a considerable portion of college expenses.
FINDING WAYS TO INCREASE ASSET ACCUMULATION – REPURPOSING PELL GRANTS Much of what is described above about CSAs stems from their potential to have psychological effects, but if they are going to truly be effective tools for helping, in particular, low-income and minority students reduce the need for student loans,
creative ways for resourcing these accounts are needed. For example, research from demonstration programs such as SEED (Saving for Education, Entrepreneurship, and Downpayment) suggests that, on average, families in CSA programs save approximately $10 per month (Mason, Nam, Clancy, Loke, & Kim, 2009). While this savings activity clearly reflects a commitment to asset accumulation, particularly given families’ limited incomes and the often-high opportunity costs of diverting money for saving, these balances alone are inadequate to provide households with true opportunities to reduce student debt, particularly in the context of rising college costs.
However, it is important to note that, while there is no national CSA program in the U.S., Canada has a national program from which we can learn (Lewis & Elliott, forthcoming). The average low-income Canadian participating in their CSA program saves about $1,031 annually. It cannot be determined whether this higher savings rate is because the Canadian program is a national program or other differences (such as the influence of savings expectations within the group plans or access to universal income supports from which low-income households can save for post-secondary education)
but it does suggest higher savings rates are possible in a CSA program than demonstrated in the U.S. and raises the possibility that intentional policy design may serve as a lever through which to induce greater savings activity. Even if U.S. families are able to achieve savings amounts commensurate with Canada, it does not appear that they can on their own save enough to equal what they can currently receive in student loans. Significantly, in Canada, college costs are somewhat lower than in the U.S., making it more feasible for families to save close to what is required for post-secondary education,
while fairly generous asset transfers capitalize the CSAs of low-income Canadians, in recognition of the very real savings constraints these families face (Lewis & Elliott, forthcoming). Therefore, funding CSAs by diverting money from the student loan program or by some other means will be needed. One way to enable low-income children and their families to build significant amounts of assets for college may be to redeploy Pell Grants as an early commitment program.
Such an approach also presents the political advantage of using monies already dedicated to higher education financing. Conversations about using Pell Grants as an early commitment program started without considering linking them to CSAs (e.g., Advisory Committee on Student Financial Assistance, 2005; 2008; Heller, 2006; Schwartz, 2008). Recently, however, the College Board (2013) recommended supplementing the Pell Grant program by opening savings accounts for students as early as age 11 or 12 who would likely be eligible for Pell once they reached college age and making annual deposits of five percent to 10 percent of the amount of the Pell Grant award for which they would be eligible.
