Assets Learning ConferenceWashington DC

Savings and College Affordability

Postsecondary Enrollment Rates of Recent High School Graduates by Family Income, 1983–2005

Notes: Based on enrollment in college within 12 months of high school graduation. Income quintiles are defined in terms of all households. In 2005, the upper income limits of the quintiles were: lowest, $16,799; 2nd, $31,998; 3rd, $50,380; and 4th, $80,662. High school graduates are not evenly distributed among income quintiles. In 2005, 13 percent of high school graduates were in the lowest income quintile, 15 percent were in the 2nd, 16 percent were in the 3rd, 24 percent were in the 4th, and 31 percent were in the highest income quintile.

Sources: NCES, unpublished tabulation using data from the Current Population Survey.

Percentage of Full-Time First-Year Dependent Students at Four-Year Institutions in 1995 Who Had Completed Bachelor’s Degrees by 2001, by Race/Ethnicity and Family Income

Notes: Includes first-year dependent students who were enrolled full-time at a public four-year or private not-for-profit four-year institution during the first term of the 1995-96 school year. The SAT score is a combined score derived as either the sum of SAT verbal and math scores or the ACT composite score converted to an estimated SAT score.Sources: NCES, Beginning Postsecondary Students Longitudinal Study: 1996/2001; calculations by the authors.

Average Estimated Undergraduate Budgets, 2008-09 (Enrollment-Weighted)

Note: Expense categories are based on institutional budgets for students as reported by colleges and universities in the Annual Survey of Colleges. They do not necessarily reflect actual student expenditures.

Source: The College Board, Annual Survey of Colleges.

Average Published Tuition and Fee and Room and Board (TFRB) Charges at Four-Year Institutions in Constant (2008) Dollars, 1978-79 to 2008-09 (Enrollment-Weighted)

Sources: The College Board, Annual Survey of Colleges; National Center for Education Statistics (NCES), Integrated Postsecondary Education Data System.

Annual Percentage Changes in State Tax Appropriations for Higher Education per Full-Time Equivalent (FTE) Student and in Tuition and Fees at Public Four-Year Institutions in Constant 2008 Dollars, 1978-79 to 2008-09

Sources: The College Board, Annual Survey of Colleges; Illinois State University, Grapevine reports; NCES, Digest of Education

Statistics 2008, Table 219.

Net Price: Published Tuition and Fees, Net Tuition and Fees, and Room and Board in Constant 2009 Dollars, Full-Time Undergraduate Students, 1994-95, 1999-2000, 2004-05 and 2009-10

Today all but the highest-income families worry about paying for

college.

Family incomes haven’t kept pace with rising college costs,

especially for those from the lowest income quintile.

Percentage Growth in Mean Family Income by Quintile (in Constant 2007 Dollars), 1977–1987, 1987–1997, and 1997–2007

Source: U.S. Census Bureau, Current Population Survey, Table F-1, Table F-3, and FINC-01; calculations by the authors, where available.

Goals for the Federal Student Aid System

The most important purpose of student aid is to expand the educational opportunities available to those young people and adults

who face financial barriers to college enrollment and success.

Why Does the Federal Student Aid System Need Attention?

Helping more Americans to become college educated will strengthen our nation’s economy and its civic life and make ours a fairer society.

The current student aid system is complex.Low- and moderate-income students would be

more likely to prepare academically if they knew the money for college would be available.

A simple, predictable, well-targeted student aid system will make taxpayer dollars go further in increasing educational opportunities and attainment.

Rethinking Student Aid Recommendations

• Simplify the student aid system

• Improve the federal loan process

• Develop a federal savings program for low-income families

• Reward institutions that support student success

Number of State-Sponsored Section 529 Accounts in Millions(with Average Savings in Constant (2008) Dollars), 1996 to 2008

Note: Information on type of account is not available for years before 1999, although the majority of accounts were prepaid tuition plans.Data are as of June 30, 2008.

Sources: College Savings Plans Network (collegesavings.org), National Association of State Treasurers.

Why 529 Plans Less Effective for Low-Income Families

Little discretionary income

Tax benefits of less value—lower tax rate, little or no tax liability

Penalties for withdrawal for non-education expenseso More likely to have to withdraw savings for

emergency useo Less confident that their children will go to college

Federal Savings Accounts for Children from Low-Income Backgrounds

Annual deposits proportional to the Pell Grants for which children would be eligible (based on income and family size)o Amount of federal deposit based on family income

reported on IRS tax formo Children of participants in means tested income support

programs (food stamps, etc.) would be eligibleAnnual communication to student and family

o Similar in concept to annual statement from Social Security Administration

o Explain total savings, interest earned, any new deposito Encourage academic preparation

Education Savings Accounts

Permit funds to earn tax-free interest analogous to federal 529 programs

Allow use of funds only for undergraduate postsecondary education

Permit access to these funds for individuals at any ageo People who grow up in low-income situations but don’t go

to college right away will have accounts in tact and continuing to accrue interest

Federal government incurs cost only if student enrolls and withdraws funds from her account

Cost of Education Savings Account Proposal

Depends on age at which federal deposits begin and % of Pell award used to calculate deposito A student who qualified for a $5,000 Pell award in a given

year might receive a federal deposit of 10% of that amount or $500

Cost estimateo If deposits began at age 12 and contributions equaled

10% of Pell award, program would reach 12.6 million families and cost $2.8 billion per year at current college participation rates If college participation rate increased from 54% to 60%, cost

would rise to $3.1 billion

Federal College Savings Accounts: What Students and Parents Think

Support is high, particularly among non-traditional students “It’s like Social Security. You’d get a statement telling you how

much money is in the account. I would show it to my kids and say, ‘see how much money there is for college? You can go’.”

ParentsCollege

Students

Non-Traditional Students

Total Supportive 77 75 81

Very supportive 41 37 49

Somewhat supportive 36 39 32

Not very supportive 11 15 11

Not at all supportive 12 10 8

Advantages of Federal Education Savings Accounts

Simple, transparent, student-focused, need-basedPotential to change the way parents view their

children’s prospects for postsecondary educationWith adequate funding, program would establish a

financial base for students from low-income backgrounds to use in paying for collegeo Almost all students who qualify for a Pell Grant at the time

of applying to college would bring a savings account with them

Savings accumulate over time in proportion to family ability to pay over pre-college years

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