For a young person, knowing that their families have saved money for college makes the idea of going real and possible.
Early college savings accounts offer an alternative to borrowing and can improve college access and completion, according to a new report from the Assets and Education Initiative at the University of Kansas released Monday.
"Building Expectations, Delivering Results," encourages policies that promote Children's Savings Accounts, such as 529 plans offered by state, that allow families to save for college as investment gains accumulate tax-free.
Research shows that college savings of just less than $500 make low-income and minority students three times more likely to attend college, and four times more likely to graduate, than their peers. Therefore, the report argues that incentives in place to promote saving could make a significant impact on the country's college completion numbers.
"Our report argues that encouraging families to save for college will create a more sustainable and equitable foundation for the nation's financial-aid system," said William Elliott, editor of the report and director of the Assets and Education Initiative in a press statement. "Encouraging enrollment in children's savings accounts is a common-sense idea that I hope more communities will embrace."
Unlike taking out a loan, which happens once students have committed to college, saving for college builds expectations for students that can impact their attitude toward pursuing higher education, the report says.
"Unfortunately, none of the many proposals for fixing financial aidforgiving student loans or lowering their interest rates, increasing education tax credits, creating multiple tiers of Pell Grants, in-state tuition guaranteesfocus on the one lever that simultaneously improves college affordability, readiness, and completion: student financial assets. Children's savings accounts are evidence-based vehicles for improving young peoples' outcomes in college and after college," the report says.
To make these savings programs more effective, especially for low-income families, the report suggests features such as automatic enrollment for every child, matching contributions with public funds, initial contributions for low- and moderate-income families, and allowable withdrawals for pre- and post-college educational expenses. Programs in California and Ohio are experimenting with offering such incentives beginning with public school children in kindergarten.