SEED Growing Knowledge from

April 2010

Lessons learned from the Saving for Education, Entrepreneurship and Downpayment Initiative

Closing the Gap in Higher Education: Connecting Asset Building and College Success By Stephanie Halligan, Leigh Tivol and Carl Rist

Introduction

Growing Knowledge from SEED is intended to distill lessons

In December 2009, CFED held a convening hosted by

from the Saving for Education, Entrepreneurship, and

Citi Foundation and Lumina Foundation for Education to

Downpayment (SEED) Initiative – a 10-year national policy, practice and research endeavor to develop, test, inform and

explore the connection between programs and policies that support asset building and those that support college access and success. The Convening on College Success

promote matched savings accounts and financial education for

and Asset Building was attended by 45 experts in the

children and youth.

fields of postsecondary education and asset building and provided the opportunity to build common ground

This edition focuses on the connection between children’s

between these distinct, yet related, strategies. The event

savings and college completion. The findings in this issue are

included presentations by leading advocates, researchers,

based on presentations and discussions that took place during

funders and practitioners from organizations in both fields,

a convening on college success and asset building.

including UNCF (United Negro College Fund), the College Board, the Hispanic Scholarship Fund, the Center for Social Development at Washington University in St. Louis, the New America Foundation, Aspen Institute’s Initiative on Financial Security, and the U.S. Department of Education.

Background on College Success and Asset Building Postsecondary education is one of the best investments an individual can make. A college degree translates to higher earning potential and can be a stepping stone to

Pipeline To and Through College for Students from Lower-Income Families By the time they are 24 years old, how many (out of 100 children) will: 100

100 80

High school graduation rate: 69.7% 69.7

60

College continuation rate: 57.4% 40.0

40

Estimated bachelors degree completion rate: 24.5%

20

9.8

0 Enter High School

Graduate High School

Enter College

Graduate College by age 24

Source: The Pell Institute for the Study of Opportunity in Higher Education (Mortensen, December 2009). www.postsecondary.org. Based on original data from Census Bureau and National Center for Education Statistics

achieving economic security. Yet escalating costs discourage

Entrepreneurship and Downpayment (SEED) Initiative

many from pursuing higher education. For the first time

and other asset-building efforts suggests that appropriate

in generations, young adults in the United States are no

savings incentives can make the cost of postsecondary

longer attaining postsecondary education at a higher

education more manageable and raise college-going

rate than their parents, particularly among the nonwhite

aspirations.4

population.1 For students in low-income households, the challenge of obtaining a college degree is especially difficult. Low-income families making less than $20,000 face an average work and loan burden of at least 44% of their annual incomes for four-year public universities, even after

Many national organizations focused on college success provide other assistance to low-income and first-generation students to help them address educational barriers, increase academic readiness and navigate the college

grant aid is taken into consideration.2

application process. Yet while college success organizations

In the absence of college savings or other assets to close

college graduation rates, the two fields have generally not

the gap, students in these families face the prospects of

intersected. The Convening on College Success and Asset

either large amounts of educational debt or dropping out

Building provided an opportunity to connect these fields

of college. The result is that only 10% of students from

and consider ways to leverage their strengths to improve

low-income families graduate from college by their mid-

outcomes for disadvantaged students.

twenties.

and asset-building initiatives share the goal of increasing

3

One important strategy for addressing this financial challenge is to provide incentives for low-income, minority and first-generation students and their families to save for college. Recent experience from the Saving for Education,

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Lessons and Key Observations At the convening, a number of key lessons and observations emerged about the barriers to college success and the challenge of financial insecurity.

How the Average Family Pays for College, by Race or Ethnicity $19,956

$20,000

$2,617 $1,696 $15,000

$19,603

Grants and Scholarships

$3,715

$16,206 $3,275

$2,922 $7,482

$1,925 $5,357

$10,000

$4,613 $5,000

0

$1,949 $1,191

$1,475 $866

$5,021

$5,268

White

Relatives and Friends Student Income and Savings Parent Income and Savings Parent Borrowing Student Borrowing

$1,470 $481 $4,442

African-American

Hispanic

Source: How America Pays for College 2009: Sallie Mae’s National Study of College Students and Parents, Conducted by Gallup. August 2008.

n Even

with financial aid, there is still a significant

savings accounts of their own actually attend college by

financial gap for low-income, minority, and/or first-

age 22, while 55% of those without savings accounts

generation students. The College Board reports

never ultimately attend college. Similar findings from

that total student aid for 2008-2009 exceeded $125.7

SEED indicate that savings accounts can help students

billion. Yet despite the large amount of financial aid

internalize the intention of attending college.

5

awarded each year, there is still a gap for low-income students who face “unmet financial need” – the amount that they must pay out of pocket even after financial aid, scholarships, and other educational assistance. One study finds that dependent students from families with incomes below $40,000 experience unmet need between $5,000 and $7,000 annually.6 n Students

are less likely to believe that college is

achievable if it’s not affordable. In addition to the financial gap, low-income, minority and first-generation students face a considerable college aspiration gap. A recent study by the Center for Social Development (CSD) revealed that 45% of low-income families experience a drop-off between college expectations and actual college attendance.7 The study also found that savings accounts are particularly strong predictors of college attendance. Among young people who expect to go to four-year colleges, 80% of those with

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The aspirational and affordability gaps are particularly great for students of color. One study shows that after receiving notice of their financial aid packages, almost 50% of Hispanic and African-American students will eliminate a college from consideration based on cost.8 n The

majority of families expect their children

to attend college, but many low-income families are not saving for higher education. Despite high expectations for college, low-income families are less likely to accumulate college savings than higher-income families. Some 92% of parents believe that it is “likely” their child will receive a higher education, but only 32% of parents making less than $35,000 are actually saving for their child’s college, and 43% of low-income parents report that they are less likely to save due to recent economic trouble.9

The Partnership for College Completion: A Model Initiative Addressing the College Education Gap through Savings, College Preparation and Scholarship Assistance A new initiative between CFED, the United Negro College Fund (UNCF), the Knowledge is Power Program (KIPP) and the Urban Education Institute’s “6to16” Initiative seeks to marry the respective strengths of the college success and asset-building fields. These organizations have formed the Partnership for College Completion to implement a project that will link savings, academic and financial counseling and financial aid – all with the goal of increasing college aspirations, achievement

Partners KIPP (Knowledge is Power Program) is a national network of open-enrollment, college-preparatory charter schools with a track record of preparing students in underserved communities for success in college and life. KIPP is known for its high-quality, intensive coursework, pre-college counseling, and college placement and support services. UNCF (United Negro College Fund) has an extensive track record of programs that combine financial and social supports to help students persist in and complete college. UNCF has a long history

and graduation rates of low-income and minority

of enhancing the quality of education by providing

students.

financial assistance to deserving students, and awards scholarship support to more than 9,000 students annually.

As part of this initiative to increase college access

CFED (Corporation for Enterprise Development)

and graduation, each KIPP student will be given four

provides deep policy and practice expertise in

essential tools for success: an incentivized college

children’s savings accounts and financial literacy. CFED

savings account provided by Citibank, integrated

SEED Initiative, a 10-year national demonstration of

financial education, strong academic preparation and support after high-school graduation, and access to scholarships.

was one of several national partners that led the matched savings accounts and financial education for children and youth. 6to16, an initiative of the Urban Education Institute at the University of Chicago, seeks to increase the number of low-income and first-generation students

n Strong

Academic Preparation and Post-

Graduation Support: An interactive online social networking platform, powered by 6to16, will deliver content and tools to equip students,

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of color who succeed in college and beyond. 6to16 provides students, schools, and communities with a high school and college readiness curriculum that equips historically underserved students with the knowledge, beliefs and skills to select, enter and graduate from college.

parents, staff, administrators, alumni and service providers for academic success, college preparedness and college completion.

Measuring Impact This project seeks to achieve the following outcomes and impact:

n College

Savings Accounts: Special college

savings accounts for KIPP students will provide incentives to encourage savings and help finance postsecondary education expenses. Accounts will be seeded with an initial deposit, and additional savings deposited by students and their families may qualify for matches from local sponsoring organizations. The Partnership for College Completion has partnered with Citibank to develop a model account platform to meet the needs of this initiative, with the

n An increase in college matriculation rates and year-

to-year college persistence for low-income and first-generation minority students. n Lower levels of debt and improved future

orientation, academic achievement, financial stability, college aspirations, and high school graduation rates among students involved in the pilot. n Increased average monthly savings with financial

education instruction. n A scalable financial product for children’s

savings, widely available at one or more financial institutions. n Opportunities to learn from a large-scale initiative,

with the goal of replicating similar programming in other settings.

hope that this account structure can be used in similar children’s savings programs in the future.

n Access

to Scholarships: UNCF will offer five-

n Integrated

Financial Education with College

year renewable academic scholarships to the

Preparedness: A financial education curriculum

top 20% of KIPP students participating in this

will be integrated into the 6to16 college

program. All KIPP students will receive support

preparedness program to help students better

to identify other financial assistance and

understand the true costs of college and to

scholarship opportunities to help defray costs

make them better consumers of their savings

of attending college.

accounts.

— Page 5 —

n Lower-income

families lack user-friendly savings

platforms and incentives to promote savings. Lowerincome families are less likely to save in widely available

Policy Opportunities and Strategy Recommendations

savings vehicles, such as 529 college savings plans.10

Based on presentations and dialogue at the convening, the

Investment accounts, which fluctuate with the market,

following recommendations suggest ways to leverage the

can feel too risky for low-income families concerned

strengths of the asset building and college success fields to

about preserving their savings. Moreover, the tax

increase college success:

deductions for making deposits into college savings plans are regressive, with wealthy families benefiting far more than the poor (who may have little or no tax liability).11

n

Incentivize efforts of low-income families saving for college. Incentivized savings accounts for children are one means of increasing savings among low-income

Offering more user-friendly account options, especially if

families. Children’s Development Accounts are typically

combined with incentives, can provide encouragement

seeded with an initial deposit and built by contributions

for low-income families to save. A study of Maine’s

from family, friends and the children themselves.

529 matching grant program showed that low- to

Accounts may also be augmented by savings matches

moderate-income families responded positively to saving

and/or other incentives. While these incentives can

opportunities and that matching incentives appeared to

come from private sources, a truly scalable structure of

influence saving performance.

incentivized educational savings will require public-sector

n Asset

12

accumulation is positively related to college

investment.

expectations and completion. Initial findings from

A number of municipal leaders are launching or considering

SEED suggest that the presence of a college account

incentivized savings programs with a college success focus.

leads to greater postsecondary education aspirations,

On the state level, 12 states are promoting savings by

and a recent CSD study confirms a positive relationship

providing a match or tax credit for the contributions of

between assets and college expectations and completion.

low-income households to 529 accounts.14

After controlling for family income and other characteristics, the study found that assets are consistent,

Federally, Congress has already proposed a variety of

stable predictors of college graduation, and that financial

children’s savings initiatives. One bill, the American

assets are linked to higher education expectations

Savings for Personal Investment, Retirement and

among both parents and children.13

Education (ASPIRE) Act, has been introduced in each Congress since 2004. ASPIRE would create an account

Asset accumulation plays a particularly important role in increasing college expectations and completion for

for every child born in the United States, seeded with $500 and matched over time.

minority students. The CSD study found a positive relationship between assets and racial and ethnic

Legislation to expand the Saver’s Credit15 represents

differences in college completion rates. The presence

another important federal opportunity. The Saver’s Credit

of assets decreases or eliminates the gap in college

currently provides a 50% tax credit on qualified deposits

completion among Hispanic and African-American

into retirement accounts (up to $500 per year). Since

students when compared to Caucasian students.

funds in retirement accounts can also be used to pay for higher education, the Saver’s Credit could be a vehicle to deliver educational savings incentives to millions of working families. Proposed refinements to the Saver’s

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Credit currently moving through Congress would make

to connect public charter schools and private

the credit refundable, expand eligibility, and extend it to

scholarship programs with incentivized savings accounts

529 savings accounts.

for children (see Partnership for College Completion,

n Remove

barriers to saving for postsecondary

education, and promote policies and programs that create “ease of use.” Many public benefit programs (such as food stamps, Medicaid or cash welfare) limit eligibility to those with few or no assets, creating a serious disincentive to saving. Advocates and policymakers should work to ensure that savings accounts designated for postsecondary education do not count against families who seek or receive public

page 4). In addition, the growing number of cities developing savings initiatives for children and youth offer opportunities to connect municipal and schoolbased programming with private-sector partners, such as financial institutions and community organizations. As these pioneering projects develop, it will be important to ensure that they build on, communicate with, and learn from one another, and help inform future efforts. n Make

the most of the current window of federal

benefits. Similarly, low-income savers may receive punitive

opportunity. The political climate has created an

treatment when they apply for federal student aid. A

opportunity to leverage significant resources to close

student’s savings can negatively impact their financial aid

the college completion gap. President Obama has set an

eligibility. Low-income students in particular should not

ambitious goal of increasing the college graduation rate

be penalized for savings designated for higher education.

of young adults from 40% in 2009 to 60% by 2020.17

n Invest

directly in low-income students by

restructuring existing federal student aid. The College Board recently suggested the creation of a federally funded program to provide a college fund, similar to a Social Security account, for low- and moderate-income students. The program would create accounts for

The 2009 Recovery Act allocated $81.1 billion to the Department of Education, including a five-year, $2.5 billion Access and Completion Incentive Fund to support innovative efforts to help low-income students succeed in college.18 Stakeholders in the asset building and college completion

children of tax filers and participants in federal means-

realms should capitalize on this new urgency and ensure

tested income support programs. Each account would

that these resources are targeted where they are most

receive deposits proportional to the Pell Grants for

needed by jointly advocating for the improvement and

which children would be eligible if they were of college

expansion of policies related to asset building, 529 plan

age. Interest would accumulate tax-free, and students

refinements, financial aid reform and other educational

could draw on the accounts tax-free for undergraduate

policies, and offering input and strategic guidance to the

education. Children and their families would know

administration on effective uses of existing resources.

16

that the government was setting aside funds especially for their future. This direct investment could have a substantial impact on the way young students view their prospects for higher education.

Endnotes 1 Ryu, M. (2008). Minorities in Higher Education 2008: Twenty-third Status Report. Washington, DC: American Council on Education. 2 Advisory Committee on Student Financial Assistance (2008). Mortgaging Our Future: How Financial

n Connect

emerging savings efforts, encourage

public-private partnerships, and link to policy developments. A number of new large-scale initiatives that link asset building and college success are currently in development. One such effort aims

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Barriers to College Undercut America’s Global Competitiveness. Washington, DC: Department of Education. 3 Mortenson, Thomas (December 2008). The Pell Institute for the Study of Opportunity in Higher Education. www.postsecondary.org. Based on original data from Census Bureau and National Center for Education Statistics.

4 For more information on the SEED Initiative, see http://seed.cfed.org. 5 College Board (2009). Trends in Student Aid. Washington, DC: The College Board. Trends in Higher Education Series. For detailed background data and additional information, please visit www.College Board.com/trends. 6 Mortenson, Thomas (December 2008). The Pell Institute for the Study of Opportunity in Higher Education. www.postsecondary.org. Based on original data from Census Bureau and National Center for Education Statistics. 7 Elliot III, William and Sandra Beverly (January 2010). The Role of Savings and Wealth in Reducing “Wilt” between Expectations and College Attendance. (CSD Working Paper 10-01), St. Louis, MO: Washington University, Center for Social Development. Read the research brief at http://csd.wustl.edu/Publications/Documents/WP10-01.pdf. 8 Sallie Mae (August 2008). How America Pays for College 2009: Sallie Mae’s National Study of College Students and Parents, Conducted by Gallup. Reston, VA: Sallie Mae. Read the full report at http://www.salliemae.com/about/news_info/research/how_america_pays/. 9 Ibid. 10 Ibid. 11 Clancy, M., Sherraden, M., Huelsman, M., Newville, D., & Boshara, R. (April 2009). Toward progressive 529 plans: Key points. St. Louis, MO: Washington University, Center for Social Development; Washington, DC: New America Foundation. Read the full report at http://collegesavingsinitiative.org/ sites/collegesavingsinitiative.org/files/529%20key%20points%204-23-09_0.pdf.

1200 G Street, NW Suite 400 Washington, DC 20005 http://seed.cfed.org

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12 Clancy, Margaret, Chang-Keun Han, Lisa Reyes Mason and Michael Sherraden (2006). Inclusion in College Savings Plans: Participation and Saving in Maine’s Matching Grant Program. St. Louis, MO: Washington University, Center for Social Development. Read the full report at http://csd.wustl.edu/Publications/Documents/RP06-03.pdf. 13 Zhan, Min and Michael Sherraden (2009). Assets and Liabilities, Educational Expectations, and Children’s College Degree Attainment. (CSD Working Paper 09-60), St. Louis, MO: Washington University, Center for Social Development. Read the full report at http://csd.wustl.edu/Publications/Documents/WP09-60.pdf 14 CFED (September 2009). College Savings Incentives: 2009-2010 Assets & Opportunity Scorecard. Washington, DC. http://scorecard.cfed.org/education.php?page=incentives_for_college_savings 15 For more information on the Saver’s Credit and to join the Saver’s Credit Alliance, see http://saverscreditalliance.cfed.org/signup 16 College Board (2008). Fulfilling the Commitment: Recommendations for Reforming Federal Student Aid in Brief. Report from the Rethinking Student Aid Study Group. Washington, DC: The College Board. For additional recommendations, please visit http://professionals.College Board.com/ profdownload/rethinking-stu-aid-fulfilling-commitment-recommendations.pdf. 17 White House, Office of the Press Secretary (2009). Remarks by the President on the American Graduation Initiative. Warren: Michigan; July 14, 2009. 18 U.S. Department of Education (2009). Discretionary budget authority. http://www.whitehouse.gov/omb/assets/fy2010_new_era/Department_of_Eduction.pdf

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