Research on Savings and Financing College for Lower-Income Students

Editor’s Note: This post is part one in a series of four exploring research on the relationship between assets and children’s educational outcomes. Senior Research Fellow Willie Elliott is an Assistant Professor at the University of Kansas and Director of the Assets and Education Initiative (AEDI) at the School of Social Welfare.

Even casual observers are likely familiar with many of the challenges facing our higher education system:

• Education is the path to economic mobility, but rising college costs construct a high barrier.
• Families worry that high costs will make college attendance impossible, even while they sacrifice to save for higher education.
• Low expectations about college attainment may stunt students’ academic achievement, such that college is beyond reach even if they find a way to finance it.
• Once students manage to enroll in college, graduation rates are unacceptably low, reducing the likelihood that the U.S. will produce enough college graduates to meet future labor market demands.
• Even with high levels of effort and ability and a strong desire to attend college, many poor and minority children perceive college as out of reach. Seventy percent of low-income children in tenth grade plan to go to college, but only 54 percent actually enroll.

What we have been sorely lacking are solutions—a path out of the debt trap, a way to convince children and families who value education that their dreams are indeed attainable, and a link between the promise of a brighter tomorrow and better academic performance today.

And while there is no one perfect response, there are encouraging signs that a pretty simple innovation could be the answer to much of what ails us: help families save.

Assets can make a difference. Savings dedicated for school change expectations and behavior and improve academic performance. Students with designated school accounts are twice as likely to be ‘on course’ for college completion as students without these dedicated assets. These effects are seen even with very small dollar accounts. Achild who hasdesignated school savings from$1 to $499 is over four and half times more likely to graduate from college than a child with no savings account. Having school savings with even $1 or less increases the odds that a child enrolls in college.  Obviously, these small amounts of money do not make a huge difference in students’ actual college financing, but they help students see themselves as people who go to college. Just opening an account turns college into an important, not an impossible, goal.

Assets affect not just students’ attitudes but also their academic preparation. Spells of asset poverty prior to age eleven have a negative effecton a child’s academic achievement scores. Policies that help children and families build assets may not only help to pay for higher education, then, but, also improve educational outcomes. And assets affect the entire family. When parents save for their children’s schooling, the presence of such resources can bolster expectations, influencing their interactions with their children and then shaping children’s academic behaviors.

Automatically opening education accounts for children in the U.S., and making deposits to those accounts to seed the savings of low-income households, is not a panacea for all of the problems in our educational systems.

However, evidence is piling up showing that assets can make a significant difference in the areas most in crisis: enrollment and completion rates of at-risk students, debt burdens, college persistence, and students’ academic preparation for college.

Assets and saving may not be a cure-all, but with evidence like this, promoting savings seems like a promising direction for financial aid policy. Look for part two in this series on designing effective small dollar savings interventions this Friday.