Home » Financial Advisor » FA Online » Mandatory College Savings Would Ease Student Debt, Study Says

« Previous Article | Next Article »

Mandatory College Savings Would Ease Student Debt, Study Says

July 15, 2013 • Ted Knutson

A mandatory, publicly subsidized college savings account starting at birth could help U.S. citizens afford college and avoid significant debt, according to a study by two University of Kansas professors.

Forcing families to put aside $23 per month with a matching government contribution would give their children $16,000 when they each reach 18, enough to avoid massive student debt, according to professors William Elliott III and Melinda Lewis, who conducted the study as researchers for the liberal think-tank New America Foundation in Washington, D.C.

Reducing the college debt burden is important because debt over $10,000 significantly reduces a student’s chance of graduating and harms long-term, post-college financial health, Elliott and Lewis said.

There is a political window of opportunity to enact a mandatory program with public contributions because of widespread publicity over the harm high debt is having on recent college graduates, Lewis said.

But the problems of getting a program running go beyond legislation, Elliott said. More research is needed on how to encourage low-income families to save, he said,

Another benefit of the program is that it would get low-income people to deal with banks, which would encourage them to put money away and save them the expense of check-cashing services and pay-day lenders, he said. Those bank accounts are said to spend $1,000 on financial services per year on average.

Under the children’s savings account as envisioned by the study, the money could only be used for post-secondary education and could not be tapped before the child turned 18.

The full report is available at save4ed.com/biannual-report.

« Previous Article | Next Article »

2 Comments

Login in order to post a comment

Comments

melindaklewis 10 years ago

Thank you so much for the interest in our work! I just wanted to clarify a couple of points. First, our research and recommendations are to mandate that families save for college--certainly not at a specific amount. The $23/month figure is a calculation of how much families would have to save, starting at birth, given average college costs, in order to avoid the high-dollar debt that our research finds may depress educational achievement. Our discussion is around resetting the default, so that we build structures that make it easier for low-income families to save, and that include incentives to support their savings, the way that tax policy currently encourages asset accumulation among higher-income households. Second, while we were pleased to partner with the New America Foundation to release the report and certainly consider them allies in much of this work, the Assets and Education Initiative is part of the University of Kansas and not formally affiliated with NAF. In regard to the comment, we certainly do not disagree that post-secondary education does not and should not mean 'college' for every student. There are absolutely valid paths to economic prosperity that don't pass through university doors. At the same time, the Georgetown Center on Education and the Workforce reports that, since the 1980s, the U.S. has failed to produce college graduates at quickly enough to keep up with demand for skilled workers. By 2018, 63 percent of all jobs will require at least some college, and we face a shortfall of 300,000 college graduates per year through 2018. Other nations are surpassing us in college graduate production (we are now 7th among developed nations), and closing the college achievement gap between economically advantaged and disadvantaged students is a key strategy for addressing this aspect of our global competitiveness. We believe that all children should have an opportunity to continue their education post-college, and that we can and must build an economy that puts that education to work, for the good of us all. Again, thank you for the coverage, and we look forward to future dialogue about the best way to construct a college financing system that meets our collective needs.
[email protected] 10 years ago

I am a retired CFP, entering that profession after 23 years of active military service. While in the Army I earned a Masters Degree. I believe the basic premise of this article is wrong. We are already producing more college graduates than this admittedly deflated economy can utilize. Most of the lower-income families I have worked with would be hard put to find an additional $23 a month to contribute to an educational fund; and of course this ignores what the matching federal contribution would do to our out-of-control national debt. When my son graduated high school he asked what he should do with his life. Taking a line from the then-popular Dustin Hoffman movie, "The Graduate," I said "Bricks." (okay, the film version said "Plastics".) Regardless, there is currently a need for more qualified tradespeople than college graduates in any but a few specialized fields. I expect a survey would find that established tradespersons net more over their lifetimes than the average college graduate.