Paying for college has become a national crisis. But while the ever-rising cost is often front-page news, there’s a second, fixable side to this problem. Too few families are saving for college.
Young people are graduating from our higher education institutions saddled with thousands of dollars in student loan debt that follows them for decades. This creates a massive economic problem for our country. The class of 2016 had more than $37,000 in debt on average upon graduation, up six percent from the previous year.In 2015, a quarter of students who dropped out before graduation did so just because of the cost of obtaining their degree.
It doesn’t have to be this way.
We know there is a direct correlation between early-childhood savings and economic opportunity. Children in the poorest fifth of households who move up the income ladder as adults – often fueled by college degrees or training programs – have almost 10 times the wealth of those who stay at the bottom.
A low- or moderate-income child with a college savings of up to $500 is more than three times as likely to enroll in college than a child with no savings account, according to the Center for Social Development. With savings of $500 or more, that same child is five times more likely to graduate from college than a child with no savings account. Family ownership of assets can give children a transformative sense of possibility and hope for the future.
The facts are clear, but still, we know it is tremendously difficult for families to save money to put their kids through college as tuition costs continue to spiral out of control. We’ve heard from many parents and students who feel as if it is impossible for their families to make the kind of early investments that make college possible. Our leaders – from the federal government on down to states, cities and towns – must take dramatic steps now to make it easier for working families to save for college. The benefits from even the smallest incentive program would be felt broadly as there is clear evidence that low- and middle-income Americans would save money if our legislators would encourage the programs that make saving possible.
We’ve begun to see states and cities taking the lead, trying to make it easier for people of all economic backgrounds to get a higher education.
Here in New York City, Mayor Bill de Blasio has launched, with funding from the Gray Foundation, an innovative child savings program we hope will make a significant impact for low- and middle-income students.
This pilot program will automatically open a $100 savings account for each registered kindergartener in School District 30 this fall – an estimated 10,000 students over the course of the program’s first three years. Just think of the difference that will make for those children who will immediately have a leg up when it comes to paying for college. Students’ family members and relatives can also make contributions toward tuition and other education costs through this savings program.
Students are automatically enrolled in the pilot program, so that children from low-income or marginalized communities won’t be left behind. If successful, the program – encompassing the Queens neighborhoods of Astoria, Ditmars, East Elmhurst, Hunter’s Point, Jackson Heights, Long Island City, Sunnyside and Woodside – would be expanded to all kindergarten students in the city.
We‘ve seen wide success in Boston and San Francisco and there are already early indicators that the New York City program will provide a huge benefit to students there. Recently, child savings account initiatives started in a diverse range of locations, such as Boston, Worcester, Mass.., Durham, N.C., Oakland, Calif. and Milwaukee, Wisconsin.
This is why we know a national savings incentive program will work. And why, in April – which is also Financial Literacy Month – we need to spread the word about the importance of and impact these programs can have. People who own assets are more likely to have a more positive outlook and higher expectations for their futures and the futures of their children. Children’s own expectations are just as important. Interviews with children show that they begin to formulate ideas about their futures – including college attendance – as early as elementary school.
There is legislation introduced in Congress to create a new savings program called USAccounts. This would open a savings account for every child born in the United States, with the federal government contributing $500 in seed money the first year. A child’s family would be allowed to deposit up to $2,000 a year, to help build a nest egg that can be used for a higher education, rolled over into a traditional retirement program or for buying a home.
There is no silver bullet to fix the savings crisis, but these types of incentive programs would make a significant dent into easing the burden on New York families.
Every student deserves the chance to improve their lives by going to college. And with access to long-term savings accounts, those dreams can become a reality.
Julie Menin is board chair of NYC Kids RISE and commissioner of the New York City Mayor’s Office of Media and Entertainment. U.S. Rep. Joe Crowley (D-Queens, the Bronx) is chairman of the House Democratic Caucus.