Guest Blog Series: An Assets Agenda for Higher Ed

Editor’s note: This is the third in a series of posts by Melinda Lewis, Policy Director of the Assets and Education Initiative at the University of Kansas examining the relationship between student loans, education, and asset building. This series previews an event on Thursday, November 7th featuring Asset Building Program Senior Fellow Willie Elliott exploring these issues. You will be able to watch the event live here beginning at 1 pm EST.

In my first post, I covered the ways that student loans impair education outcomes, and the second, how they impair financial outcomes. Now the question becomes, what, then, should we do?

Today’s financial aid system operates along a tow-tier track, where low-income students mostly rely on student loans, while higher-income students benefit from asset-based investments, largely administered through the tax code. As a new report by NAF Senior Fellow and Director of the Assets and Education Initiative (AEDI) at the University of Kansas, Dr. William Elliott, explains, the result of this divide is seen in poorer educational outcomes for disadvantaged students. Cumulatively, this erodes the equalizing effects of higher education.

Policy changes—in higher education and financing, taxation and public assistance, and asset accumulation—can reset these respective paths, particularly for currently-disadvantaged students. Here’s how:
 

• Reinvest in higher education as a collective good: Congress should reverse the declining value of the Pell Grant and reaffirm the commitment to providing financial support for qualified students in need. State policy should restore public funding to rebalance university budgets. Slowing the rapid increase in the price of college will reduce the gap between what low-income families can save and what they must spend, while helping to bring debt down to more manageable levels for those who must borrow.

• Minimize the negative effects of student debt: Policymakers should explore provision of ‘emergency’ aid, to prevent disruptions in academic progress; incentives for educational attainment, potentially including at least partial loan forgiveness for on-time degree completion for Pell-eligible students; and policies that reduce debt burdens, including income-based repayment and incentives for employer matching for student debt repayment following graduation. At the same time, U.S. policy needs to intentionally support college graduates, particularly those with debt, as they strive to build assets. Debt does not have to mean that this generation must delay homeownership, net worth accumulation, and other milestones towards economic security. Mortgage products, savings incentives, and other vehicles can ensure that graduates are building assets even as they work to pay off their debts.
   
• Eliminate disincentives for college savings: While policy subsidizes asset accumulation of those earning enough to have tax liabilities, rules within our safety net serve as disincentives to low-income households’ saving. By making it nearly impossible for families to save, asset restrictions serve to funnel students into the student loan market. States and the federal government should eliminate asset tests within means-tested public assistance programs, and eligibility for means-tested grants and loans should be based solely on income.

• Integrate savings components into existing financial aid programs, and leverage the variable of timing to take advantage of ‘early commitment’: Among other options, the Pell Grant program could incorporate a savings component. Children could be informed of their expected award earlier; eligibility determinations could be made based on a few years of the household’s income, instead of just that senior year; money could be set aside for students in a vehicle that could also accommodate additional deposits by families. Additionally, universities and localities could divert some of their scholarship money to savings structures, similar to the approach pursued by communities like San Francisco, CA and Cuyahoga County, OH.
   
• Build progressive, lifelong, universal, asset-building child savings structure: As we have described here before, to make Child Savings Accounts (CSAs) work for low-income households, some policy features are essential: automatic enrollment (opt-out), ideally at birth; initial deposits that give all children an immediate stake in their futures; program features to ease access, like low initial deposit requirements; concerted outreach and education; and special incentives, such as refundable tax credits and/or direct matches. Significant educational outcome effects are possible even at very low levels of savings, but low-income students and families can only be expected to accumulate enough assets to prevent high-dollar debt if CSAs have adequate assistance to build significant balances. This will require redistribution, and the evidence suggests that it will be a worthwhile investment of U.S. financial aid dollars.