Archive for Saturday, February 2, 2013

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

February 2, 2013


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.


Cant_have_it_both_ways 4 years 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.

KansasCommonSense 4 years 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.

just_another_bozo_on_this_bus 4 years ago

So, low-income people seeking education in order to become more productive members of society and the economy are "animals."

jhawkinsf 4 years ago

"Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime."

Leslie Swearingen 4 years ago

Yep, as long as the fishing hole doesn't run dry, the fishes don't all die out, the fishing pole doesn't break, he doesn't run out of lures, doesn't break a leg so he can't get to the fishing hole, etc.

jhawkinsf 4 years ago

By etc. I assume you mean if a meteor doesn't hit him in the head or if bigfoot doesn't jump out from behind a bush and scare him so badly that he suffers from PTSD or one of those Burmese pythons that are lurking in the Everglades doesn't adapt to colder climates and migrate north and snatch the unsuspecting fisherman eating him whole or, or, now I'll let the next poster continue with the etc.

chootspa 4 years ago

Is the whole point to teach people to fish by sending them to college instead of giving them SNAP when they can't afford college and end up in low wage jobs?

elliottaw 4 years ago

It does not have to be a large amount for the program to work, you give a child a small amount of money and teach them through their life they can go to school and it drastically improves their belief they can actually go.

Cant_have_it_both_ways 4 years ago

Great.... let me see if I can find an address for YOU to send YOUR check to!

Steve Jacob 4 years 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.

elliottaw 4 years ago

This is about giving kids money while they are young and having them save money throughout their lives so they grown up and have a chunk of money for school, they also grow up believing they can go to college and that it is obtainable.

Cant_have_it_both_ways 4 years ago

Or, the kids can throw papers or do something else to pay their own way.

elliottaw 4 years ago

When is the last time you saw a paperboy?

Cant_have_it_both_ways 4 years ago

It's a shame isn't it? You can thank the living wage the left demanded.

elliottaw 4 years ago

except that paper routes started to disappear in the early 90s and the living wage discussion didn't start until the 2000s, but let the facts get in your way

chootspa 4 years ago

Yes. I'm sure that's exactly why the newspaper industry is dying.

Katara 4 years ago

Too many paperboys demanding their $2.

elliottaw 4 years ago

Or you could read some research I this and make an informed decision, there are a number of conservative republicans that also endorse this

chootspa 4 years ago

Yes. Let's lower the cost of education in general by increasing the public funding of it. -LIke we used to do back when people could afford to go to college by asking people if they wanted fries with that.

chootspa 4 years ago

A license, and you'll enforce that how? Free birth control and abortions on demand? I suggest you go propose that solution to Brownback immediately. I'll go pop some popcorn.

Deb Engstrom 4 years ago

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

valgrlku 4 years 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.

Cant_have_it_both_ways 4 years ago

I fully agree. The educational system is a business. They are totally focused on their survival. They continue to offer junk degrees and bless these children with unsurmountable debt. It should be criminal in some cases in just what happens to some of the students. I used to think that a degree in something was worth having, but being in the workforce, I would much rather have someone that shows up to work every day, sober and ready to assist in what ever the days events happen to be. I dont know why anyone would hire someone to say, run a warehouse, when they have zero people skills. They generally have no clue what is going on and with out good mentoring generally suck at what they are trying to do. They generally try to re invent the wheel and have no idea. The Army called these college educated types "90 day wonders". Restated, I would rather have a guy that is receptive, shows up every day sober.

elliottaw 4 years 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

valgrlku 4 years ago

Your link speaks to the importance of fostering a savings identity, but I did not see any discussion of feasibility of how one can realistically achieve enough savings to afford a four-year degree. I don't think that anyone is arguing that being able to save and understanding the importance of doing so is anything but positive. However, for many people, savings is just not feasible. In reality, even if one saves $5000 from birth to 18 (which would be completely out of reach for many people targeted for the savings plan), it wouldn't even pay for one semester at KU in today's current market. Other funding would be necessary.

valgrlku 4 years ago

"Reducing financial burden" sounds great, but whether your burden post-college is $500 or $100k, it doesn't really matter, if you can't find a job or have enough left over after monthly living expenses to afford to pay back the loans. God forbid if something terrible happens to you, preventing you from working (and adding to your personal debt). Even at just under 8% (my current loan rate), one winds up owing roughly (or more) 40% more in interest payments added to the principle. It honestly does not seem like anyone understands the economic reality of how much attending college costs. Gone are the days of just working a job or two (if one can even secure a position) and putting oneself through college, for most people. Hence, our current state of student loan debt.

welliott 4 years 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.

valgrlku 4 years ago

Of course, saving is a better option. The point being that saving is NOT an option, for most low-income people. They could save $10k (for reducing student debt as suggested)? Again, how could ANYONE with an average low-income status ever save that much money? From where, exactly, is this savings originating?

Plus, I would love to see who exactly is included in the sample of the average student debt profile. There must be some pretty substantial outliers in there whose debt is zero to come up with a mere $26k total debt per student average (undergrads AND graduate students?). Is that $26k just the principle, or does it include the 20-year interest, too? The monthly payments on "so little debt" alone are often equivalent to a car or rent payment. That's A LOT of money owed monthly, when one has a $10/hr job (assuming one has a job). NONE of my friends who went to KU and had to take out loans have this little debt, and they graduated almost 20 years ago. Just no one. The people with no debt had very generous parents/grandparents.

Who in their right mind thinks that this kind of saving is feasible for anyone? It seems to smack of trickling down from a very privileged position of someone who is able to do so.

welliott 4 years 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.

welliott 4 years 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.

Richard Heckler 4 years 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.

oakfarm 4 years 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.

KSWingman 4 years 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.

just_another_bozo_on_this_bus 4 years ago

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

Yea, the serfs' kids have no right to expect to have anything but the serfs' life their parents had.

KSWingman 4 years ago

Honest jobs, every one of them.

What do you have against honest labor?

just_another_bozo_on_this_bus 4 years ago

Nothing. But why do you believe in a caste system?

George Lippencott 4 years 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??

elliottaw 4 years ago

You give a child upon birth $500 in a savings account, it is then up to them to add to it so they have a nest egg when they go to college. This type of program has been tried in a handful of places and has provided tons of positive results. You can google the I Can Save program in St. Louis, the Kalamazoo Project in Michigan, The Pittsburgh Promise in Pa and there is many more, help kids to get a nest egg going is not a bad thing, and it is not a yearly amount of money they would get just a small chunk to get them going.

George Lippencott 4 years 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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