One Good Idea: A College Savings Account for Every Child

A study finds that students who had saved between $1 and $500 were four times more likely to graduate than students with no savings at all.

This can only be used with Sophie Quinton's piiece which originally ran in the 7/19/2014 issue of National Journal magazine. Child's bank account for college.
National Journal
July 18, 2014, 1 a.m.

In Feb­ru­ary, Nevada star­ted open­ing a col­lege sav­ings ac­count for every child en­rolled in pub­lic kinder­garten. In March, a private Maine found­a­tion an­nounced it would de­pos­it $500 in­to a 529 ac­count — that is, a col­lege sav­ings plan — for every baby born in the state. And some time dur­ing the next school year, Col­or­ado plans to open col­lege sav­ings ac­counts for about 2,000 low-in­come preschool­ers.

(James Kacz­man)States, cit­ies, and counties hope that start­ing sav­ings ac­counts for kids will en­cour­age par­ents to plan for their chil­dren’s post­sec­ond­ary edu­ca­tion. The amount fam­il­ies save may not mat­ter, says Reg­gie Bicha, ex­ec­ut­ive dir­ect­or of the Col­or­ado De­part­ment of Hu­man Ser­vices (which is part­ner­ing with two oth­er state agen­cies on the pi­lot pro­gram). “What mat­ters is that they learn early about the im­port­ance of sav­ing — that they see col­lege as a real­ity in their chil­dren’s fu­ture.”

In­deed, re­search sug­gests that even small nest eggs can in­crease the odds that a child will earn a de­gree. A 2013 Uni­versity of Kan­sas ana­lys­is of the Pan­el Study of In­come Dy­nam­ics, a long-run­ning sur­vey, found that low- and middle-in­come stu­dents who had saved between $1 and $500 for col­lege were over three times more likely to en­roll and four times more likely to gradu­ate than stu­dents with no sav­ings.

Re­search­ers at Wash­ing­ton Uni­versity in St. Louis are con­duct­ing a ran­dom­ized con­trolled tri­al to test the ef­fect of giv­ing new­borns 529 ac­counts. Thirty months after the ex­per­i­ment began, 16 per­cent of fam­il­ies that re­ceived $1,000 in a state-owned ac­count had opened up 529 ac­counts of their own, and about 8 per­cent had star­ted to save in them.

Those per­cent­ages may sound small, but in most states only about 3 to 4 per­cent of chil­dren un­der 18 have a 529 ac­count in their name, says Mi­chael Sher­raden, dir­ect­or of the Cen­ter for So­cial De­vel­op­ment at Wash­ing­ton Uni­versity. Fam­il­ies giv­en a state-owned ac­count were more likely to open (and use) an ac­count of their own. In gen­er­al, wealth­i­er and more-edu­cated par­ents were more likely to be­gin and use ac­counts, but the re­search­ers also found that re­ceiv­ing a state ac­count in­spired some less-well-off fam­il­ies to open ac­counts. Chil­dren who re­ceived ac­counts in the study showed bet­ter so­cial and emo­tion­al de­vel­op­ment by age 4 than those who didn’t, and their moth­ers were less likely to de­vel­op symp­toms of de­pres­sion.

“What mat­ters is that they learn early about the im­port­ance of sav­ing — that they see col­lege as a real­ity in their chil­dren’s fu­ture.”

Reg­gie Bicha, ex­ec­ut­ive dir­ect­or of the Col­or­ado De­part­ment of Hu­man Ser­vices

The idea that the gov­ern­ment should es­tab­lish sav­ings ac­counts for all chil­dren has been cir­cu­lat­ing since the 1990s. In 2005, a bi­par­tis­an group of sen­at­ors pro­posed cre­at­ing sav­ings ac­counts for every new­born, but the idea didn’t be­come law. While sup­port at the fed­er­al level has stalled, loc­al pro­grams have taken off — in San Fran­cisco; in Cuyahoga County, Ohio; across the KIPP charter-school net­work.

It’s still not clear how best to design these ac­counts or what level of pub­lic, private, or fam­ily con­tri­bu­tions will make the biggest dif­fer­ence. Bicha’s team has pro­posed a three-year pi­lot in Col­or­ado that — like many sim­il­ar pro­grams — would op­er­ate as a pub­lic-private part­ner­ship. The state would open 529 ac­counts for chil­dren at­tend­ing state-fun­ded preschool, and private donors would match a por­tion of fam­ily sav­ings with dona­tions. (To be eli­gible for the Col­or­ado preschool pro­gram, chil­dren must be from dis­ad­vant­aged fam­il­ies.)

Bicha hopes to prove that the link between sav­ing for col­lege and do­ing well in school will hold for very young chil­dren. He wants “to show that chil­dren who have a chil­dren’s sav­ings ac­count “¦ will be more likely to be pre­pared for kinder­garten on our kinder­garten as­sess­ment, that they’ll be more likely to read in third grade when we do our third-grade read­ing scores.” Most of all, he wants more par­ents to be­lieve that their preschool­er is col­lege bound.

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