Asset Building News Week - May 27, 2016

Featured Story: Inequality in Higher Education Financing

As the price of higher education rises, and it becomes increasingly essential to hold a college degree, the federal government, states, and colleges are implementing plans to attract and aid low-income students. However, not all of these plans end up benefiting low-income students in the way that’s intended. In fact, the proportion of wealthier students graduating from college is rising, while the proportion of lower-income students receiving degrees continues to fall.

This week, The Atlantic’s Jon Marcus explored how students from wealthier families benefit the most from college-affordability efforts. For example, higher-income students earn more money on average from work-study than their low-income peers; the families of higher-income students also receive more from tuition tax credits. Many state policies also favor wealthier students, offering “merit grants” so that students may be likelier to choose to stay in-state for college. For example, the Taylor Opportunity Program for Students (TOPS) in Louisiana provides tuition allowances for students based on residency and academic performance. To save money on this program, state legislators are recommending raising eligibility requirements, even though a new report from Tulane University shows that this would disproportionately affect low-income students and students of color. The authors of the report recommend turning the TOPS program into a need-based program instead, as reported by Rebekah Allen in The New Orleans Advocate.

Complicating the affordability debate is the fact that tuition is not the only expense students must pay to attend college. New America’s Education Policy Program recently held an event, More Than Tuition, discussing the federal Cost of Attendance (COA) measure. This measure is meant to include the entire package of education and living expenses, but it often cannot accurately predict student need, meaning some students borrow more than they need, while others come up short on necessary funds.

However, some new efforts have seen promise in reducing the inequality found in higher education. Meredith Kolodner in The Atlantic recently covered programs found at Rutgers University-Newark which prioritize “students who are often ignored—low-income, urban, public high-school graduates with mediocre test scores.” The university offers free tuition for Newark residents whose families make less than $60,000 a year, makes transfer from community colleges relatively easy, and also has a program to identify and assist students who are falling behind in their tuition payments. Unsurprisingly, Rutgers-Newark has the second-highest graduation rate for black males in the country.

News Highlights: Economic Well-Being, Consumer Financial Protection, Credit, and More

Report on the Economic Well-Being of U.S. Households in 2015

The Federal Reserve released its third annual “Report on the Economic Well-Being of U.S. Households in 2015”. According to the Fed, “...Individuals and their families continue to express mild improvements in their general well-being relative to that seen in 2013 and 2014. However, a number of adults still indicate that they are experiencing financial challenges, and optimism about the future tempered in 2015.” Part of that declining optimism may be related to the fact that nearly half of households are not well positioned to weather a financial disruption. Although 68 percent of non-retirees reported saving some money over the past year, a full 47 percent of respondents say they could not cover an emergency expense of $400 without selling something or borrowing money. Moreover, many respondents lack access to credit, have heavy debt loads, and/or have no retirement savings.

Google's Relationship with Payday Loans: It's Complicated

Writing for the New Yorker, Gary Rivlin examines Google's relationship with payday lenders after the announcement that it would no longer sell ads for payday loans. Businesses, like payday lenders, pay Google for ad space and search terms relevant to their business. Payday lenders purchased words like "loans", "bankruptcy", and, of course, "payday loan." Pew "discovered that terms related to payday lending cost between $4.91 and $12.77 per click. That means an online lender was probably paying Google more than five dollars for every person who clicked through to one of its ads," thus making these words some of the more expensive Google ad-word searches. "Don't be evil," is one of Google's core values, however, its relationship with the payday loan industry muddies these waters a bit says Rivlin.

Elizabeth Warren Calls On Americans To Fight Wall Street

A group of lawmakers and labor leaders, including Senator Elizabeth Warren (D-MA) and AFL-CIO's Richard Trumka, have united to continue the push to reform and regulate some of the more questionable activities on Wall Street in order to better protect American consumers. In a speech at the launch of the new coalition, Warren lists five demands: "breaking up the biggest banks; ensuring access to non-predatory products, including through the United States Post Office; ending the carried interest tax loophole that allows hedge fund managers to use a tax break for investment income on the income they make at work; reining in executive bonuses; and imposing a financial transaction tax." The coalition will not just lay out a policy agenda, but also attempt to pass such reforms at the city, state, and federal levels.

The Basic Financial Tool That Can Help the Unemployed Find Better Jobs

Access to credit can help the unemployed find better jobs, reports The Atlantic's Gillian White. "Research has shown...that as workers hunt for new gigs, stress about making ends meet, and deplete their savings while covering their standard expenses, the salary they're willing to accept gets lower and lower." Access to credit “can buy the unemployed more time to hunt for a job without fear of skipping bills or cutting back on necessities. Even when wealthier households are cash-poor, they're more likely than poorer families to have relatives they can borrow from, assets they can liquidate, or access to another important tool: credit." Whether the person actually uses the credit is not important, White says. It is the peace of mind that access to credit brings that matters because of the safety net it provides.

What's So Great About 401(k)s, Anyway?

In Mother Jones, Kevin Drum mounts a defense of 401(k)s by comparing product features to that of traditional pensions. Drum sees 401(k)s as a complement to Social Security, making a traditional three legged stool argument, saying “If we want to expand Social Security, that's fine. But that's no reason not to have additional options to save privately for retirement.” Some of the features Drum finds superior to those of defined contribution plans include immediate accumulations of savings, the ability to withdraw a large amount of funds for a big purchase, such as a house, and the capacity to pass on funds to children if one passes away early. He admits that 401(k)s require consumers to shoulder more of the risk of saving for retirement and that for some this risk may be too great. But, he argues that 401(k) aren't “bad” and that they have been improving in recent years. 

News in Brief: Wealth Inequality , Economic Growth, Homeownership, and More

• Infographics by Vox’s Alvin Chang illustrate wealth inequality in the United States from the 1960s through today.
• “Getting a degree means putting off homeownership for a long time—while not getting one may mean putting it off for good,” writes The Atlantic’s Kriston Capps. 
• The House Ways and Means Committee held a full hearing entitled “Moving America’s Families Forward: Setting Priorities for Reducing Poverty and Expanding Opportunity” that explored reducing US poverty through improving welfare programs like Temporary Assistance for Needy Families (TANF).
• “When it comes to growth, the modern presidency is more like a tinkerer than a chief engineer,” writes The Atlantic’s Derek Thompson on the idea that presidents can save the economy.
• The Atlantic’s Bourree Lam reports on an experiment in Philadelphia that connects money bail to recidivism.
• As the “Fight for $15” begins to pick up momentum, some within the movement are starting to look towards to next arena: unions; Bryce Covert from ThinkProgress reports. 
• Writing for The New York Times, Robert H. Frank explores the role that luck plays in an individual’s success.
• “[W]e need public policies and employer practices that dramatically shift savings behavior toward the modest, consistent contributions by both workers and their employers,” writes David Brown on a new report released by Third Way.  
• James Riccio and Cynthia Miller of MRDC report on the results of an experimental conditional cash transfer program for low-income families in New York.

Events

Foreclosure Fraud in the Wake of the Great Recession | New America | June 7, 2016

Connecting Communities to Build Financial Well-Being | Federal Reserve System | June 14, 2016