Investing in Children Early Increases Access to Education

Having a children's savings account drastically increases a student's likelihood of going to college.

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At the Student Loan Ranger, we care a lot about student loans—not because it's in our name, but because student debt can impact major life decisions: the ability to take a lower-paying public interest job, start a family, buy a house, and even whether to go to college or not. That last one's a little ironic, since federal student loans were created as one way to increase access to education.

[Read about student loan changes for 2012.]

And the Student Loan Ranger most definitely cares about access to education. Higher education is often called the great equalizer—the path through which anyone, by effort and ability, can realize the American Dream.

For this to be a reality, everyone must be able to access higher education. But soaring tuitions are increasingly placing college beyond the reach of many low- and moderate-income students.

[See how community colleges are working to keep low-income students in school.]

For them, the availability of federal student aid may come too late. Despite high levels of ability, these students may be increasingly hearing that costs will make a college education impossible, and many of them, seeing their families struggle to meet basic needs, may be giving up on the dream earlier in life—such as in middle school, before they ever learn of opportunities for grants or loans.

Children's savings accounts (CSAs) are one way to combat this "wilt" and keep students college-bound. We're highlighting CSAs not because they mean less borrowing (though that's a good thing), but because they mean greater access to education. 

Research from the Washington University in St. Louis Brown School of Social Work shows that children with savings accounts will be seven times more likely to attend college than those without an account. But often, low-income families, in addition to having limited funds, have limited access to savings. They may not have developed relationships with banks, for instance, and may not have access to investment tools like Roth IRAs.

Because tangible financial resources are critical to college success, CSAs address barriers to these resources, as well as the role savings and income plays in children's expectations—and, as a result, achievement.

CSAs aim to level the playing field. The idea: Rather than put more money into student loans, the government can better increase access to education by investing in children's savings.

[Get information on saving for college.]

Basically, the government or organization sets up accounts for children, and investments in the accounts are matched by either government or private funds. As a result, children need not rely on their families to set up an account for them, and government or private matches to consistent investments mean that even small deposits can grow.

Even these small amounts of savings have an impact. Because CSAs make saving possible, students aren't as discouraged by an inability to meet costs. College remains an attainable goal, and children and their families remain committed to making it a reality.

So, when the time comes, and students learn of the availability of college financial aid, they have prepared themselves academically, are confident in their family's commitment to their success, and have experience and confidence utilizing financial resources and aid.

Earlier this year, the New America Foundation released "Creating a Financial Stake in College," a series of reports on the relationship between children's savings and improving college success. The reports lay out why policymakers should care about savings; how structural inequalities have created an unequal playing field for low-income families; the link between savings and children's college progress; and how CSAs can allocate resources to low- and moderate-income children so they can compete.

Saving for Education, Entrepreneurship, and Downpayment (SEED) initiatives have begun to demonstrate the potential of CSAs. San Francisco's Kindergarten to College (K2C), for example, will open an account for every child entering kindergarten in a San Francisco public school with a deposit of $50. Children enrolled in the National School Lunch Program will receive an additional $50, and the city is working with foundations, community organizations, local businesses, and individuals to provide funds for additional deposits and matching incentives.

On a federal level, the proposed ASPIRE Act would set up an account at birth for every child and seed it with a one-time $500 contribution. Children from low-income households would receive an additional $500 and the chance to earn up to $500 a year in matching funds.

The bottom line is that savings are positively associated with educational aspirations and achievement, keeping low-income children college-bound despite limited financial resources. Federal aid can help, but student debt is becoming more and more of a barrier.

The Student Loan Ranger thinks we need more programs like K2C and SEED, which overcome the institutional and financial barriers that cause so many students to relinquish college dreams at an early age, so that higher education really is accessible to all. Only then can it fulfill its role as the great equalizer. 

Radhika Singh Miller is a program manager for Educational Debt Relief and Outreach at Equal Justice Works. She has served on student loan committees in the Department of Education's negotiated rulemaking focusing on the College Cost Reduction and Access Act (CCRAA) and other debt relief initiatives. Radhika graduated from Loyola Law School Los Angeles. Prior to joining Equal Justice Works, she was a staff attorney at the Partnership for Civil Justice, focusing on constitutional and civil rights litigation and advocacy.