College Savings

Mark Huelsman - 

In this version of New America's weekly podcast, Media Relations Manager Kate Brown sits down with Mark Huelsman, Program Associate with New America's College Savings Initiative to discuss the connection between savings and college completion, the advantages of 529 college savings plans, the ability of low-income families to save for higher education, and policy proposals to help them do just that.

An MP3 recording of this interview is available below. For more on Mark Huelsman, click here.

Mark Huelsman - 

Just last year, tuition and fees at four-year public colleges rose 6.5 percent. Unfortunately, this continues a decades-long trend of rising college costs, even during periods of economic unease and low inflation. Escalating prices have also coincided with stagnation in need-based financial aid availability, the result of which has been mounting levels of student debt for low and middle-income families. In this context, there has been greater reliance on savings, particularly through 529 college savings plans, in order to increase college affordability and reduce debt.

But there is also an emerging body of research linking savings to important educational and behavioral benefits, as well as college completion.

The Obama Administration has indicated that saving, broadly, will help lay a new and sustainable foundation for economic growth, and that saving for college in particular can help America regain its global education lead. How can college savings plans be reformed to help achieve these goals, particularly for low and moderate income families? What has the Obama Administration learned from its recent review of 529 plans? How are states, through their 529 plans, helping families combat the rising cost of higher education? And how are families actually saving for college, given the current economy?

Join the New America Foundation's College Savings Initiative this Thursday, November 5th, for a discussion of these questions and more, featuring Alan B. Krueger, Assistant Secretary for Economic Policy at the U.S. Treasury Department. This event will also feature commentary by Dan Ebersole, State Treasurer of Georgia, Margaret Clancy of the Center for Social Development at Washington University in St. Louis, and Scott Buchanan of Sallie Mae.

A live webcast of the event can be seen on the event page.

 

Mark Huelsman - 

This week, Sallie Mae and Gallup released "How America Saves for College", an annual report on higher education savings behaviors. The whole survey deserves a read, but here are a few highlights:

• Only 32% of low-income families (those making under $35,000 a year) have saved for college. By contrast, 62% of all families have saved for higher education.
• The current economy is impacting college savings behaviors.  For example, 36% of low-income families are saving less for college than before. Only 5% are saving more.
• Families making under $50,000 who are currently saving for college put away, on average, larger amounts than those making between $50,000 and $150,000.
• Families making under $50,000 annually save 7.5% of their income for college, on average. By comparison, the average college savings rate among all income levels is 3.6%.
• In order to reach estimated "savings goals," low-income families need to save nearly 10% of annual income until a child reaches college. On the other hand, families of all income levels only need to save 5.7% of annual income to reach their savings goals.
• 529 college savings plans are the third most popular savings vehicle for college - with one-third of all families using them.
• Only 4% of low-income families consider themselves "very familiar" with 529 college savings plans. A whopping 75% were "not at all familiar."

What are the key takeaways from this survey? And how can we apply these findings towards enlightened federal policy?

David Newville - 

Earlier this week my colleague Rourke O'Brien and I had an op-ed on improving 529 college savings plans published in the Oregonian. In it, we argue that 529s are a promising saving vehicle for helping families of all incomes pay for college and get ahead, but they need to be reformed in order to work better particularly for low- and moderate-income families. The excerpt below describes some of the reforms we suggest: 

"Some of the changes they should recommend include the federal government or states providing direct incentives for low- and middle-income families to invest in college savings plans by matching a portion of annual deposits. Thirteen states already do this or something similar to it. The federal government could also provide tax incentives for employers to encourage them to enroll their employees in 529s for their children and match contributions, similar to what many do for retirement today with 401(k) plans."

The Treasury Department also released a report this week with additional recommendations for reforming 529s and an emphasis on making sure more low- and moderate-income families are able to benefit from this important savings vehicle. For more information on improving and expanding 529s or the College Savings Initiative, please go to www.collegesavingsinitiative.org. 

Mark Huelsman - 

Yesterday, Vice President Biden took his Middle Class Task Force world tour to Syracuse University to discuss college access and affordability. The forum's all-star lineup also included Treasury Secretary Tim Geithner and Education Secretary Arne Duncan.

The event coincided with a report from the Treasury Department on the effectiveness of 529 college savings plans (full disclosure: New America, through the College Savings Initiative, is mentioned as a resource multiple times). You can read Treasury's observations and recommendations here.

More interesting however, was Secretary Geithner's full-throated support of saving broadly -- and saving for higher education in particular -- as a means to close achievement gaps and regain America's footing as a global education leader.

Mark Huelsman - 

While I usually leave it over to our friends at Higher Ed Watch to discuss the latest hullabaloo in the world of student loans, something in today's Wall Street Journal stopped me on a dime. From WSJ:

New numbers from the U.S. Education Department show that federal student-loan disbursements-the total amount borrowed by students and received by schools-in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion.

Gulp. For many families, financing higher education without piling on too much debt was already a steep proposition. Like everything else post-financial crisis, it's gotten even more difficult. Job losses, home equity losses, market swings, stagnation in federal aid, state budget strains, and tuition increases have resulted in increasing uncertainty and hopelessness over household budgets, and a dramatic spike in the amount of money students are borrowing for college. Much can be blamed on the economic mire in which we find ourselves. But the point remains: many students and families are taking on unsustainable levels of debt, and it's affecting important life decisions. And in turn, it's affecting our ability to jumpstart the economy.

Before a long Labor Day weekend of despair sets in, however, this author offers hope to drink in: There are ways for Congress, the Obama Administration, States, and the financial industry to collaborate and give families a way to escape crushing levels of debt. The tonic? Targeted and meaningful savings incentives.

Mark Huelsman - 

By Jackie Williams, College Savings Initiative

The state of Illinois recently passed a bill, SB 77, creating a state income tax credit for employers making matching contributions to their employees' 529 college prepaid and savings accounts.  The credit is a 25% match of the employee contribution, not to exceed $500 per employee. The provision is effective for the current tax year and runs through December of 2020.

This is an important step forward to involve employers in helping employees save for their children's or even their own higher education expenses.  Most of us don't learn about saving and investing until we begin fulltime employment.  This is typically when we begin contributing to 401K accounts.  So why not encourage greater savings discipline for college at the same time employees are investing for retirement?

Employers have the capacity to encourage better academic participation by making it easier for employees to contribute to savings plans.  Offering payroll deduction and providing financial support in the form of matching contributions are two important ways that employers can support their workers. The workplace is often an important classroom for learning about saving and investing.

Justin King - 

I know it's hard to keep up with the kids and their lingo these days.  That's why it's refreshing to see some  old school, Webster's approved usage from time to time.  In this case, the Democratic Policy Committee has released their annual report, "The 2009 Fresh 50: Fifty New Policy Ideas for Senate Democrats."  In this case the "fresh" in question means:

"new; not previously known, met with, etc.; novel: to uncover fresh facts; to seek fresh experiences."

 Though, we could also make the argument for definition #17: 

"Slang. a.exciting; appealing; great."

Regardless, the upshot is the same.  The "Fresh 50" is an annual compilation of new policy ideas that might be appealing to Democrats in the United States Senate.  The list is compiled by the DPC staff and disseminated to all US Senate offices and beyond as a helpful resource of promising new ideas for their consideration and potential action. As they say in the report, "These ideas do not represent the positions or agenda of the Democratic Leadership in the Senate. They are the result of a brainstorming exercise meant to develop fresh, new ideas for review and consideration by Senate Democrats." We're thrilled to have three ideas from the Asset Building Program deemed "Fresh" for 2009.

Mark Huelsman - 

Note: This post was originally published on Higher Ed Watch, New America's commentary on the world of higher education, run by the Education Policy Program.

Recently, 529 college savings plans have come under criticism. Like many stakeholders in the economy, 529 plan owners have not been isolated from financial pain, and many critics have used recent market volatility and plan underperformance to call for reform. Others, however, have gone further and called for policymakers to abandon 529s in particular, and savings overall, as a plausible conduit to help families afford college. As New America's recently launched College Savings Initiative is charged with examining and improving 529 plans, we feel that it is important to respond to some of these arguments.

To their credit, many critics of these plans share our general goal -- to increase postsecondary access and affordability for low- and middle-income students. We simply differ over whether or not 529 plans provide a promising tool for helping students attend and complete college who could not otherwise afford to go.

Consider this: A recent Gallup survey from Sallie Mae indicates that, while 62% of parents are saving for college, only 32% of those making less than $35,000 have put any money aside for this purpose. Furthermore, half of those low-income families are saving even less (or in some cases not at all) in light of the recession. This is, quite obviously, cause for concern. But is encouraging savings -- and college savings plans as vehicles to do so -- really the answer? We believe so.

Mark Huelsman - 

Things I found really, really silly this weekend: This doomsday-sounding article from CNBC titled "529 Plans Won't Cover the Cost Anymore."

Quick synopsis: 529 plans (like investment vehicles everywhere and, say, the global economy) have performed poorly. College is expensive. But, unless you're really lucky/rich, they weren't supposed to fund an entire education anyway. Wait, some 529s offer age-based options and they certainly get you in the habit of saving for college. And, in any economy, you should be looking for scholarships and grants too.

Since this is a blog and not a policy paper, I can say the following:

Umm, duh?

Perhaps this is another case of headlines gone horribly awry, but I feel like the premise of the article is not only odd, but dangerous. Of course many families are unable to save enough in a 529 plan to fund an entire education (which makes the 'Anymore' in the title seem beyond goofy). Of course a student should be seeking out scholarships and any form of aid he/she can find. Of course savers should be more vigilant about their mix of investments in this market.

But why make it seem as though 529s are out of favor for half of the piece, or worse, make it seem like a family shouldn't consider utilizing their many advantages?