New York City is starting to give every public school kindergartner a college savings account seeded with $100. What initially started four years ago as a pilot program has now expanded in an effort to put more children on a path to higher education, The New York Times reports.
This vote of confidence from the nation’s largest school system could add momentum to the growing number of efforts to establish small-dollar college savings accounts. Such programs typically invest funds in a state-run 529 college savings plan, where they grow tax-free and can eventually be withdrawn, tax-free, for eligible educational expenses.
City-funded accounts for 70,000 students annually
Under New York City’s program, all kindergartners—roughly 70,000 students—will be automatically enrolled in a college savings account each year, starting with $100 and the potential to receive up to $200 more. Families are encouraged to add some of their own funds to the account; there are incentives and dollar-for-dollar matches up to $100 to drive growth. The scholarship must be used within 20 years of completing kindergarten or it will go back into the program.
The city intends to invest $15 million in the program through 2025, and the Gray Foundation will provide an additional $15 million. Officials expect that, after factoring in investment returns, family savings, and philanthropic support, the accounts will generate a $15-$20 return on every public dollar invested.
Students, meanwhile, can expect their city-funded accounts to grow to at least $3,000 by the time they graduate from high school. And, although that hardly covers the expenses associated with college, the account’s mere existence could increase a child’s chances of going to college.
Creating a college-going culture, philanthropic infrastructure
William Elliott III, a social work professor at the University of Michigan, looked at the relationship between children’s small-dollar savings accounts and college enrollment and graduation, finding that low-income children who had the accounts were three-to-four times more likely to enroll in college than those without.
“They feel like they can change their destiny and their future,” he told The New York Times.
In addition to sparking conversations about higher education, child savings account programs create an infrastructure that enables nonprofit organizations and corporations to direct funds to students. “I don’t want to lose track of the fact that one of the really important things these kinds of programs do is they provide the infrastructure to transfer wealth to lower-income families,” Elliott said.
New programs popping up across U.S.
New York City’s program adds to a growing array of similar child savings accounts programs across the nation. Since 2013, the Alfond Grant in Maine gives all babies born in the state $500 toward future college or training expenses. In 2011, the city and county of San Francisco launched one of the nation’s first publicly funded universal Children’s Savings Account programs.
Pennsylvania—the first state to pass a law establishing universal college savings accounts for all newborns—seeds around 140,000 new accounts annually with a $100 contribution. By the end of 2020, there were more than 922,000 children’s savings accounts in 36 states and the District of Columbia, according to Prosperity Now.