States seed college savings accounts to set stage for higher education

A growing body of research shows the benefits of state programs that establish and seed college savings accounts for every child. Such efforts, experts told The New York Times, not only help families build assets but also foster a college-going culture.

“College accounts change [parents’ and kids’] attitude about their ability to go to college,” said Ray Boshara, a senior adviser for the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. “A relatively small intervention has potential to change economic outcomes.”

To date, college savings accounts—also known as 529 plans—have been used primarily by higher-income families. But policymakers and higher education leaders have taken note of the accounts’ potential to close equity gaps if more low-income families had them, prompting a number of savings account experiments across the nation.

SEED OK participants saving more

Oklahoma in 2007 launched its SEED for Oklahoma Kids (SEED OK) research project, which randomly selected more than 1,300 newborns to receive a $1,000 college savings account. A program update published this month shows that participants had an average of $3,243 in their account as of 2019. In contrast, just 4 percent of the 1,300 children in a control group had even established an account.

Families of children who received the seed funding were about five times more likely than control group parents to have contributed toward the college savings account; they also were more “college-focused.” The benefits, program leaders say, were especially concentrated among low-income families and those in which the parents had not attended college.

College savings accounts are one of the most effective ways to help low-income children set their sights on college, says William Elliott III, a professor of social work at the University of Michigan and a co-author of Making Education Work for the Poor. Especially when established early in life, “a savings account for a low-income kid means a lot more to them than it does for a wealthy kid,” Elliott said.

Programs across nation offering new insights

As more and more stakeholders experiment with the model, some are finding that automatic enrollment is crucial. In 2009, the private Harold Alfond Foundation started offering a $500 grant to families of every new child born in Maine, provided they took the initiative to open a college savings account. Less than half took advantage. When the foundation switched to automatic enrollment in 2013, participation surged to include almost every newborn. Overall, the effort has awarded $58 million, and parents have contributed an additional $114 million to their children’s accounts.

Experts are keeping tabs on similar efforts scattered throughout the nation. For instance, 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. Illinois and California have allocated funds to start giving every newborn an account, and Nebraska automatically enrolls every child born in the state in a 529 plan but does not yet provide funding. Starting next year, Nebraska will offer matching funds to families with incomes below 200 percent of the poverty line.

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