Rethinking America’s College Savings Programs
The future of college savings
Instead of relying on individual programs or behavioral nudges, we propose using behavioral insights to build better college savings mechanisms from the ground up. Rather than implementing small tweaks to existing frameworks, we can apply effective savings strategies from research on financial behavior to institutionalize college savings. To restructure the college savings landscape, governments and financial providers should employ a three-pronged approach:
1. College savings accounts for every child, opened at birth
Encouraging families to open college savings accounts at birth creates an expectation that they should be thinking about higher education and how they will finance it as early as possible. To date, only a handful of US states have implemented statewide children’s savings programs, though momentum has increased with legislators proposing programs at the federal level, as well.
Policies that automatically open accounts for all children also provide a platform to address wealth inequality. By offering greater subsidies for low-income families, as in the SEED OK program, we can even the playing field between families with different levels of existing assets. A policy of this scale has the potential to address the racial wealth gap as well; scholars Darrick Hamilton and Sandy Darity have similarly proposed “baby bonds” as a way of reducing inequality that can stem from generational wealth transfers.
This solution must originate at the highest policy levels in order to set standards for behavior. For a model of how these accounts might function, we can look to the work of Michal Grinstein-Weiss and colleagues at the Center for Social Development. Grinstein-Weiss outlined the legislative and programmatic components necessary to launch a universal CDA for all children born in Israel. With restricted access to funds at age 18, progressive contributions from the government, and centralized account administration as core features, this program has seen great success since launching in January of 2017. Not only do families accumulate assets through government contributions, but also more than 40 percent of all Israeli families have made contributions of their own. While we don’t fully know the budget required to operate such a program in the United States, the downstream economic benefits of expanding higher education will certainly outweigh the upfront costs.
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