Will student savings accounts encourage a switch to the college-track mindset?
Thursday, the U.S. Department of Education announced its plan to help disadvantaged students gain access to college through investing in a college savings account. Details of the new program were debated in a panel discussion at the New America Foundation. As part of the GEAR UP program, the College Savings Account Research Demonstration Project will provide $8.7 million to nearly 10,000 high school students, as well as offer counseling in financial literacy. The randomized research study will compare an experimental group that receives the federal funding to a control group in order to determine how college savings accounts and financial planning affect college-going behavior.
Through this discretionary grant program, each participating student will receive $200 in seed money from the federal government to start the savings account. Participants will add $10 of their own money per month for 4 years, and the federal government will match that $480. Therefore, at the end of four years, the college savings account will contain only $1,160 plus interest.
According to Debra Saunders-White, Deputy Assistant Secretary for Higher Education Programs at the U.S. Department of Education, the program does not aim to cover the hefty costs of college, but rather encourage students to plan for higher education during their life. By saving money throughout high school, higher education becomes a feasible prospect, rather than an unattainable dream.
“It is the behavior and the concept that we are trying to improve in terms of starting to lay the ground work,” Saunders-White said at the panel. “There is an expense to this, and [college] could be attainable for those who acknowledge early on that there is a process involved.”
Another panelist at the event, William Elliott III, Assistant Professor at University of Kansas School of Social Welfare, said that there seem to be positive effects from simply having a savings account. “[The current research] would lead you to believe that it is less about the amount, and more about future expectations.”
However, the question remains, does the program provide students with a “reasoned hope” or false hope regarding college finances? The average cost of tuition, room, and board per year is $20,100 at public institutions and $39,800 at private institutions. For example, the maximum $1,160 that a student can save does not even cover books for a year at the University of Virginia.
As Saunders-White and Elliott note, GEAR UP is trying to change the mindset of students so higher education is seen as the next step. However, the question remains whether the meager amount provided by the savings account will be enough to change student behavior and improve college access. At just $1,160, the money accrued from the savings account may have a negligible impact on a high school student’s decision to go to college. Since students will either participate in the program or not, researchers won’t be able to distinguish between the effect of having a savings account and the effect of how much money is contributed. No matter the findings, researchers still won’t be able to answer: “Would our findings have changed if a different amount of money was contributed to the students’ accounts?”
In order to make college more attainable and ensure students are ready to navigate the maze of college financial aid, the GEAR UP financial literacy courses must include units on federal grants and loans so that students learn the application process for Pell Grants, the difference between Stafford and PLUS loans and between net price and sticker price, and other vital info, including need-based or merit scholarships. In our opinion, college finance awareness, which is part of the general GEAR UP program, seem more likely to have a large impact on college-going behavior than a small $1,160 savings account.
According to an announcement posted in the Federal Registrar, the U.S. Department of Education is accepting public comment on the College Savings Account Research Demonstration Project until July 2, 2012.
Written by Education Sector policy interns Allison Schulhof and Jared Billings