Rhode Island educators and state officials heard last Friday how savings, and saving for college, can change lives. They also learned of a proposal to provide every Rhode Island newborn with a saving plan absolutely free to get them started.
The Rhode Island Higher Education Assistance Authority (RIHEAA), in partnership with the Office of the General Treasurer, hosted a presentation by University of Kansas’ Assets and Education Initiative.
During the morning event at the Radisson Providence Airport Hotel, Dr. William Elliott III, associate professor and founder of the Assets and Education Initiative, and the Initiative’s policy director Melinda Lewis spoke about the benefits a statewide college saving program that establishes a savings account every child can have when it comes to encouraging children to go to college or other post-secondary programs, and eventually pay for it.
Elliot said a savings account can be life-changing for those children living in lower- to moderate-income families.
By establishing an account specifically to help pay for higher education, a child’s expectations about attending college or another training program can change. Elliot shared a story about a friend in his neighborhood growing up whose father always talked about how he set up a savings account for his son and he was going to college.
“I always thought going to college was for playing football,” joked Elliot.
While today’s young people hear about going to college more, many believe it may never be an attainable goal because of the cost. However, having an established savings account starting at birth can change that mindset.
“It’s not we borrow to go to college, which can have negative consequences; it’s we save and go to college,” said Elliot, acknowledging that it is unlikely a savings account would be able to cover the entire amount of college tuition, but it is a start. “It gives you a sense of control you don’t otherwise have.”
Many people will actually avoid going to college because they do not want to put themselves in debt with student loans, or cause children to feel the effects of student loans long before they apply to college.
In fact, Lewis said Rhode Island has the fifth highest student loan debt in the country, with the average 2012 graduate carrying a debt of $31,156.
Also, those students living with large amounts of student loan debt experience much less wealth and are more likely to postpone owning a home, getting married or starting a family.
But if they have a savings account through childhood, they will believe they can go to college and will work harder to eventually get there.
But it doesn’t stop with just getting kids to go to college. According to Elliot, those who have a savings account at a young age are not only more likely to gain access to college, but are more likely to graduate, have an account as they enter adulthood, buy a house, invest in stocks and maintain other positive financial habits.
Lewis was able to address some of the policy elements that would need to be included in a college savings program of this nature, as well as some of the options that could be decided later.
“It’s not just savings good, no savings bad,” said Lewis.
Some key policy elements need to be facilitating automatic deposits, matching savings to build balances, investing early, protecting assets during time of financial insecurity, and aligning financial aid and public benefits policies to remove disincentives. Lewis said that the low investment, online giving tools of the CollegeBoundfund and access to WaytogoRI.org, an online portal made available to all schools by RIHEAA, are all great benefits.
RIHEAA currently offers an optional program to start a savings account at a child’s birth. She suggested that program could be enhanced with things like automatic enrollment, additional incentives throughout elementary and secondary school, as well as incentives during college.
“We have to not think college savings stops when college enrollment starts,” said Lewis, adding that maybe policies could be put in to allow students to designate a portion of their savings to enrichment activities or other needs that arise during college such as technology and textbooks.
Elliot and Lewis also addressed concerns that having a savings account could affect funds available through federal and school need-based aid programs. The two speakers explained that as this practice becomes more common, policy changes would need to be made to remove that concern.
“You want to make sure your financial aid program is integrated into the other things you are doing,” said Elliot.
Both speakers also touched on options such as allowing Pell Grants to be awarded at an early time, such as the start of high school. The award could be put into the savings account, encouraging the student to pursue higher education because the money is already there or informing the student that they will receive that award upon graduation. The same could be done with other grants or scholarships.
“There still needs to be public money to invest,” said Elliot.
While no state has attempted to implement a universal children’s savings account program, there are about 16 programs in various cities and counties across the country.
Gail Mance-Rios, acting executive director of RIHEAA, said the idea of providing CollegeBoundfund accounts for all newborns in the state is one of the things RIHEAA is very interested in pursuing.
“If we are permitted to continue with this, we would really like to have those automatic accounts,” said Mance-Rios.
Currently parents of newborns can obtain an account with a balance of $100 at no cost with a simple application, however, of the 11,000 Rhode Island newborns every year, only a few have accounts. Since inception of the free program in 2010,
only a couple hundred parents have taken advantage of the program.
The program is financed by Alliance Bernstein that manages the CollegeBoundfund as part of its contract with RIHEAA to run the 529 plan with assets of more than $7 billion.
Mance-Rios says that is obviously not as many as they would have liked to have, but they also did not do an aggressive marketing campaign to let people know about the option.
If a program of this nature were to be established, Mance-Rios said it would be open to all individuals, not just those from low-income families who were the main topic of discussion during the event.
The plan would be to develop programs to get parents and students to invest in their accounts.
“We would establish an incentive program to specifically support low-income families through activities that can change behavior,” explained Mance-Rios, citing having students complete the challenge to read six books over the summer or enroll in enrichment programs as points in time where money could be added to their accounts. Funding would come from RIHEAA.
General Treasurer Gina Raimondo, who credits her parents with teaching her how to save money at a young age, said, “We used to joke that my mom could make a quarter out of two nickels … and she still can.”
Looking at a program to establish savings accounts to help children save for college is something Raimondo, a mother of two young children, believes in. Raimondo is already a supporter of the current CollegeBoundfund (both of her children are in the program).
“As treasurer, I am committed to continue supporting this program; we need it,” said Raimondo.