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Archive for Saturday, February 2, 2013

KU researchers push for government-funded college savings accounts for children

February 2, 2013

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William Elliott, assistant professor of social welfare at Kansas University.

William Elliott, assistant professor of social welfare at Kansas University.

Terri Friedline, assistant professor of social welfare at Kansas University.

Terri Friedline, assistant professor of social welfare at Kansas University.

Skyrocketing student-loan debt in recent years has left college graduates saddled with huge financial burdens, convinced other students to drop out and scared some young people away from college completely.

So what's the solution?

Researchers in Kansas University's School of Social Welfare have an idea: Instead of saddling students with gobs of money in loans after graduating high school, give them a smaller amount to keep — 18 years earlier.

William Elliott and Terri Friedline, both assistant professors of social welfare at KU, are pushing for something they say would not only open up the option of college for more young people and cut down on loan debt but also spark them to do better in school: government-created savings accounts provided to every child at birth.

As the total student-loan debt in the United States nears $1 trillion, Elliott said, "at some point you've got to quit getting people in debt and start trying to find another solution."

The benefit of the savings plan is primarily psychological rather than financial: it creates a culture of savings and plants the idea that college is a possibility.

"It changes the way you think about college," Elliott said.

The social welfare school's Assets and Education Initiative is devoted to this idea. Elliott has served as its director since arriving at KU in fall 2011, and Friedline has been a faculty associate since joining the school this past fall. Both have cranked out research, before and after their time at KU, on this idea of savings accounts for children and how they could shape their lives in a number of ways.

The savings account concept has caught the eye of the U.S. Department of Education. Last May, it announced an $8.7 million research effort to test the effectiveness of federally funded savings accounts for kids, through its GEAR UP program for low-income students.

Such accounts don't even need to be big to have a big effect. Elliott's research has suggested that children with college-designated savings of at least $1 but less than $500 are more than four times as likely as children with no savings to graduate from college.

Rather than hear only about how much college costs and the potential for scary loan debt, these children grow up thinking positively about the possibility of higher education.

"If you have money for school, you're more likely to think school is possible," Elliott said. "That's not rocket science."

The idea would not need to incur a huge cost. One plan proposed twice in Congress, the ASPIRE Act, would create a $500 savings account for every child at birth, with more contributions and matching funds available for lower-income children. Its total cost would be about $3.25 billion. Compare that with the federal government's annual expenditures on student loans: somewhere around $65 billion. In theory that number could be reduced because more students would be encouraged to save for college.

One overlooked aspect of the student-debt explosion, Elliott said, is the particular effect it has on low-income and minority children.

"Really what we've seen is that student-loan debt can discourage particularly minority and lower-income children from going to college, because they tend to be loan-averse, some of them," Elliott said.

Even if they do go to college, rising debt makes them more likely not to graduate, he said.

Elliott and Friedline's concept comes from a broader social welfare field concentrating on the possible benefits of assets programs — savings accounts — for low-income people in general. Researcher Michael Sherraden of Washington University in St. Louis has been the primary proponent since the early 1990s.

But KU has been the leader on this idea of extending the concept to children's college savings, they say.

"The policy momentum around extending that to children specifically has just been the last few years," Friedline said.

Politicians on both sides of the aisle tend to find things to like and dislike about the idea, they say. Conservatives like the idea of personal responsibility a savings account encourages, but worry about further redistribution of wealth; liberals support giving a hand up to low-income children, but worry it will draw away from other welfare programs.

Some U.S. cities have started similar programs, and so have some other countries, including the United Kingdom and Singapore.

"We really are behind the eight ball on this one," Elliott said.

Comments

George Lippencott 1 year, 2 months ago

Well, that is $5B a year plus or minus or $50B as we budget. It pays little toward actually attending college so I supose we continue the loan and grant programs as they are. They amount to a trilion in government guarenteed loans with a Billion give or take in loan forgiveness per year. So our investment is $60B and our hope is that more who start finish. Thta is a lot of money.

A would opine that we limit college funding increases t(including tuition) to 1 or 2% per year, mandate a minimum teaching schedule for professors and better managed research to require a 50 % or better return on the portfolio, Doing so would make education more attractive. I would also limit grants to those fields of study actually needed by the nation and require a responsible GPA and course load. My solution might be a lot cheaper and potentially more effective unless, of course the goal is simply getting more people to complete college regardless of the utility of the degree obtained.

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George Lippencott 1 year, 2 months ago

What am I missing?? A loan means repayment. A grant is just that. Are we now agreeing that as a society we will guarantee a college education for all??

Where does the 3.25B come from? $500 one time yields about $650 after 20 years - hardly enough to put a dent in the debt our students are running. $500 a year yields about $13,000 still a small portion of what the average student is borrowing. In fact we would have to move to an annual payment of about $5000 to cover the borrowing costs of today’s students. That could hit the taxpayers for $500B over ten years with no repayment.

If we are going to do this for the next generation should we not forgive at least that much in loans for our current student population and double the costs to the taxpayers. We are already running a trillion dollar a year deficit and are arguing we cannot afford the promises we have already made. Neat idea but who pays??

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KSWingman 1 year, 2 months ago

How about this? The taxpayers of Kansas don't pay $500 to each new baby for college, and these babies don't grow up expecting the state to act like their grandparents.

Personal responsibility- what a concept!

Remember, the world needs ditch diggers, garbage collectors, farmhands, and parking lot attendants, too.

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oakfarm 1 year, 2 months ago

This idea is irrational to the point of lunacy. Instead of student debt for college, we create more government debt for taxpayers? Who knows if they will even attend college? or complete college? or earn a degree that creates value for them or society? Why make a new charge to the federal government credit card? Realize that the federal government is already basically creating a deficit account for each newborn: Just divide the federal debt by the number of newborns.

This is a joke ignoring the reality of today as well as the traditional approach to saving and earning (the right to) an education. It is up to the parents to start this saving account, not taxpayers.

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Richard Heckler 1 year, 2 months ago

"The idea would not need to incur a huge cost. One plan proposed twice in Congress, the ASPIRE Act, would create a $500 savings account for every child at birth, with more contributions and matching funds available for lower-income children. Its total cost would be about $3.25 billion. Compare that with the federal government's annual expenditures on student loans: somewhere around $65 billion. In theory that number could be reduced because more students would be encouraged to save for college."

Make sense. As of now tons of money is being wasted managing the huge debt on loans backed by Uncle Sam. DO gov't backed school loans encourage white collar crime? YES!

What about the private loan industry that kept loaning out money no matter what the amount and no collateral? What about that? Whoaaaaa this smells like the BUSHCO home loan scam?

I'd say this country has got some big time lack of regulation problems being created by white collar crooks in the finance industry. Just like the home loan situation. Put these folks in prison.

BUSHCO eliminated close to 11 million jobs with their scam which begs the question how does anyone expect USA college grads to pay back the debt? The jobs are nowhere to be found..... not one that can mange the debt.

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welliott 1 year, 2 months ago

I personally have over $100,000 of student loan debt so no, I do not speak from a privilege position. Further, I grew up poor and was homeless at times, I could go on but I say this just to say I do understand how hard it can be to save. That is why it is very important to start when the child is very young. It is also important that we encourage saving among the poor in ways that we encourage saving among the middle and upper class through 401K plans and tax credits. There are ways to help even very poor people save some and there is research that shows even the poor can save when given access to the same institutional mechanisms that others benefit from. However, I would not say that CDAs are a silver bullet and that they will solve all of our college financing problems but a part of the puzzle. Moreover, I should add to this conversation that they are not just for the poor but a universal program for all children.

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welliott 1 year, 2 months ago

I should also add, this does not mean that we should not be actively pursing ways to reduce the cost of college. Starting a CDA program is not at odds with also holding universities, states, and the federal government to finding ways to drive down the cost so that the savings is more effective. We can do both.

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Nubrick 1 year, 2 months ago

give them, give them, give them, give them, give them.

And the government education inflation rate for the last 40 years is at about 400%

And the government has debased the dollar 70% since going off the gold standard.

And the government gets the money to use like it used the money in the "lock box" SS accounts.

And government people thought it up.

And people wonder why the economy sucks

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welliott 1 year, 2 months ago

The conversation we are having about children's savings is not about whether government should provide any money for education, it already does and they likely will for some time given that China is now doubling down on investing in education because they understand that it is the next arms race to see who will make the batteries of the future, for example.

The question for me, is how best to use that money in a way that also aligns with American values such as our belief in personal responsibility. CDA programs require that families and children have a stake in the game and invest some of their own money and effort if they want to be successful.

For example, research shows that student loans: • Can lower expectations for attending college; and in turn, preparation for college. • Evidence is mixed at best on whether student loans actually increase enrollment in college. • Over $10,000 in student loans reduces the chance that students graduate from college. • Student loans reduce overall financial health of households (that is it reduces the return on college; households with a college graduate and outstanding student loans have less net worth than households with a college graduate and no loans).

In contrast research shows that child savings: • Raise expectations for attending college; and in turn, preparation for college. • Increases enrollment in college. • That even small amounts of school savings increase the chance of graduation. • Reduce the amount of student loans needed (We just need to cut loans down below $10,000 right now the average loan amount is about $26,000; don’t have to pay for full tuition through saving). • That early savings improve financial outcomes into adulthood.

It is not about being a democrat or a republican, it is about making better decisions about how we spend our money while promoting our beliefs as American's in personal responsibility. It just seems like saving might be a better investment than increasing students' ability to borrow. We might all agree on that.

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elliottaw 1 year, 2 months ago

It is not suggesting that the child will have enough saved that they can pay for college out of pocket, just that it could drastically reduce their financial burden on both them and the loan agency (i.e. federal student loans) This should address some of your other questions

http://assets.newamerica.net/sites/newamerica.net/files/policydocs/Elliott_III_final1.4.12.pdf

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valgrlku 1 year, 2 months ago

I have read about this type of program at least twice in recent memory and still cannot fathom how being given a paltry $500 in savings at birth would ever translate into enough money to complete a four year degree.

According to KU's affordability site, the in-state yearly cost of attendance (including tuition, fees, books, and housing) is $18764 PER YEAR. Assuming a student doesn't qualify for grants or scholarships (which, let's be honest - for most students will never cover the full price of attendance without loans or other outside funding), how in the world can anyone ever save enough money to attend college? My parents made very little money, and I never qualified for any government grants, just loans. Plus, KU has an interesting habit of taking away my (now) very small (read: less than $1500 year) KU sponsored grant for the poorest of us students, rather than reducing my loan burden, if/when I'm lucky enough to garner a GTAship.

Does someone know how to do the math on how much a $500 savings account would need added to it over 18 years to keep up with rising tuition costs? I know that my interest bearing savings account has a terrible .15% rate on it right now.

I've met very few people either "poor" or "middle class" who have any money left over at the end of the month to put into savings for emergencies, let alone a child's college fund. What happens if the child isn't accepted into a college or just doesn't go? What happens to the money then (especially if someone were to contribute to the fund)? I honestly don't see how a program like this will work, given the exorbitant cost of college with no apparent relief in site for rising attendance costs.

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Deb Engstrom 1 year, 2 months ago

Great idea! Let kids know early on that higher education is an option and they will perform better. No-brainer.

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toe 1 year, 2 months ago

The government must first issue a license to procreate. A license will limit too many births and lower the risk of poor performing offspring.

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Milton Bland 1 year, 2 months ago

Another completely DUMB idea from the liberals. Will they never learn that those who don't earn anything never have a sense of self-worth? Why don't we tackle the real issue and try to lower the cost of education in general.

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weiser 1 year, 2 months ago

I notice the McDonalds in town are hiring. No joke, I know several college grads who worked for that fine company. I shined shoes and I have two degrees. What happened?

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Steve Jacob 1 year, 2 months ago

Still think the bubble will burst on college, like housing. Cost goes up every year with less and less return for the money. And now, grads hitting the job market are losing out to recent military veterans.

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KansasCommonSense 1 year, 2 months ago

Why make it just $500 make it $50,000? Or just waive student debt. Liberals first reaction is to give money away. That have a sign in Yellowstone - don't feed the animals they will not learn how to feed themselves. We need that sign next to these Professors or maybe in front of KU.

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Cant_have_it_both_ways 1 year, 2 months ago

When you start giving to anyone you create dependency, it becomes redistribution when all are not treated equally. Although this recomendation has some merits, again the very reason we are broke is we keep throwing money at the problem. A good example would be the graduation rate of Haskell. Students have no ownership in their path. you make different choices when you bet on a poker hand with someone elses money. Reports have it that higher education costs have risen 4X the cost of medical services but yet we do nothing to control it. Education is a cash cow with benefits by those who control it. The problem with costs should be taken care of on the other end by controlling the costs of higher education.

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