Establishing College Savings in Kindergarten

It has been a tumultuous 18 months for higher education in California. From student protests over double-digit percentage increases in education fees to cuts in community college services to an ongoing budget crisis, the figures representing the state’s fiscal and educational well-being are often massive -- and on the wrong side of the ledger.

Yet today, the City of San Francisco announced the start of a new low-cost program that offers both financial hope for students and a model for other municipalities, states, and the federal government to impact long-term issues of college affordability, access, and completion. The Kindergarten-to-College (K2C) program will provide a system of universal college savings accounts to every kindergartener entering the City’s public schools. This year, K2C (total cost: $250,000) will cover approximately 25% of the City’s students, focused on low-income neighborhoods, with citywide enrollment expected by the third year of the program.

The City will automatically enroll each student and provide an initial deposit of $50, with an additional $50 for students in the federal government's free or reduced-price lunch program. In addition, culturally and developmentally appropriate financial education will be provided to parents or caregivers and their children. San Francisco will also be the first city in the nation to integrate financial education into the math curriculum in every grade. Beyond that, the City is leveraging philanthropic efforts to help low-income students build larger balances. EARN -- a Bay Area-based non-profit that provides savings incentives for low-income families -- has promised to match the first $100 of a family’s individual savings in each account. The average household income for EARN savers is just around $20,000. Yet, through EARN, these families have accumulated $12.6 million in over 3,000 accounts since 2002.

In a policy arena so often signified by the word “billions,” how can $50 or $100 improve affordability, access and completion?

First, the affordability issue: In many cases, savings can replace future debt and protect against income shocks, while keeping children on course to receive postsecondary credentials. But, according to city officials, one in three San Francisco children are born into families with no savings or assets of any kind. This number increases to 1 in 2 for African American and Latino children. Furthermore, poor and working-class families in California must devote 40% of their income, even after financial aid, to pay for costs at public four-year colleges according to a 2008 report from the National Center for Public Policy and Higher Education.

Compounding the problem is the fact that financial aid isn’t what it used to be. This year, the maximum federal Pell Grant covers 35% of average tuition, fees, and room and board at public four-year colleges and universities nationwide. For the 1987-88 academic year, the maximum Federal Pell Grant covered 50% of public higher education costs, according to the College Board. In addition, nearly 87% of Pell Grant recipients graduated with student loan debt in 2008, compared to just over 50% of non-Pell Grant recipients. By starting in kindergarten, students have the opportunity to build balances over time, making them more financially savvy and less reliant on student loans.

Second, there are benefits to owning a savings account dedicated for college that can occur long before a student enters the university gates and receives financial aid. A recent study from the Center for Social Development at Washington University in St. Louis -- New America’s partner on our College Savings Initiative -- indicates that, among students who expect to attend college, those with accounts are about seven times more likely to attend college than similar youth who do not have accounts. In addition 55% of those without accounts, who expect to attend, have not enrolled in college by the age of 22.

In a city in which the dropout rate is 18.8% overall, 38.5% for African Americans, and 22.8% for Latinos, owning an account could have an impact on high school graduation as well. As for college completion, a statistic that has stagnated for the past several decades, financial assets (including savings) are a consistent and stable predictor of later college graduation -- even more so than a family’s annual income.

While many families will only save a small percentage of what is necessary to fund a postsecondary degree in California and elsewhere, universal savings accounts -- structured properly -- could have a broad affect on aspirations and behaviors at a critical development stage for low-income students, and single-handedly move them into the financial mainstream.

It has long been a bipartisan desire to both provide a college education to more children at every income level, and regain America’s global lead in higher education. Given the realities facing California and other states, helping them save might be our best bet.

Mark Huelsman is a Policy Analyst with the College Savings Initiative, a joint project between New America and the Center for Social Development at Washington University in St. Louis.