The Economy and Saving for College

The New America Foundation recently completed a series of papers called, Creating a Financial Stake in College, that addresses the connection between children’s savings and college success. The first of five reports in the series is about - Why Policymakers Should Care about Children’s Savings. Through the context of the well-documented disparities in college attendance and completion rates by socioeconomic class, and the growing role that education plays in employment and economic mobility, the paper addresses the question; “How do we create greater access to college and higher completion rates for more of America’s children?” The report suggests that part of the answer is to focus on the short-term problem of paying for college.

The paper addresses concerns over growing college debt and simultaneously falling salaries – and notes that this is particularly troubling for students who go into the “helping professions” such as social work, teaching and religious training). The paper states that an “increasing reliance on college loans and mounting college debt has caused some policymakers and researchers to question whether funding college attendance and completion through debt accumulation is a wise policy decision. This, coupled with the current economic crisis and additional focus on debt, may make children’s savings policies a more appealing alternative to expanding access to college loans or continuing to invest in them at such high rates.” This report suggests that financial aid policies that promote asset accumulation among children and their families are a way for the federal government to help restore balance in the financial aid system. One such solution, the promotion of children’s savings accounts, leverages investments by individuals and their families with investments from the federal government (e.g., initial deposits, incentives, matches).

For policymakers, thinking outside of the traditional options is ever more critical in the current economic climate. In order to ensure that both our communities and our economy are healthy policymakers are considering new options to support families. As noted in the report there are “noteworthy efforts underway to create a more accessible savings infrastructure for children. State college savings (529) plans are tax-advantaged savings vehicles offered in 49 states and the District of Columbia.”

To learn more about the importance of College Completion visit PolicyforResults.org.