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Much of the discussion about low-income students in Washington has centered on getting those students access to larger federal grants and loans, convincing them to apply for aid, or even persuading them to think about pursuing higher education in the first place.

Far less attention has been paid to giving families incentives to put away more of their own money for college through designated savings accounts -- an approach proponents say makes students more invested in their education and therefore more likely to graduate.

Arizona’s three state universities this year launched a new scholarship program with such an approach.

With the help of a federal grant from the U.S. Department of Health and Human Services and matching funds from the universities, the “AZ Earn to Learn” program gives low-income students a $4,000 scholarship for each year of college. In order to qualify, students from families making up to 200 percent of the federal poverty level must save at least $500 of their own money each year and agree to attend financial literacy workshops.

Arizona officials say the program is a first-of-its kind federal-university partnership, describing it as “a fundamentally different way of delivering need-based financial aid that empowers students to build lifelong assets such as consistent savings behavior.”

The universities -- Arizona State University, Northern Arizona University and the University of Arizona -- have so far received $3.47 million from the federal Assets for Independence Program, which the institutions are matching to support more than 1,500 scholarships. If federal funding comes through, they hope to increase the total number of scholarships to more than 2,600 by 2015.

The new program has launched in a state whose higher education system has been hit hard by the recession. While nearly all states have slashed funding for public universities in recent years, those budget cuts and the resultant tuition hikes have been especially drastic in Arizona.

The state also, given its population, awards one of the lowest amounts of grant aid in the country. Arizona ranked second to last among the 50 states, the District of Columbia, and Puerto Rico, in the amount of per capita grant aid it awarded in 2011-12, according to data compiled by the National Association of State Student Grant and Aid Programs. 

The Assets for Independence Program gives grants to nonprofit entities who agree to find matching non-federal funding to support Individual Development Accounts -- special savings accounts that assist low-income families in building funds to buy a home, pay for higher education or start a small business.

Kate Hoffman, a former financial adviser who now runs a nonprofit in Arizona that administers the program, said she was drawn to the savings account model because it “builds self-sufficiency.”

“It's about investing in your own success,” she said, noting that 90 percent of students in the first cohort last fall -- all of whom are Pell Grant-eligible -- have re-enrolled for next fall.

Efforts to promote such asset-building for low-income families across the country are growing -- Hoffman’s nonprofit, for instance, also runs an employer-assisted housing benefits program -- and are becoming increasingly common with respect to college savings.  

“This is an idea that has been percolating for a long time,” said Leigh Tivol, the director of savings and financial security at the Corporation for Enterprise Development, a nonprofit organization that focuses on asset-building for low-income families. “In the absence of a large federal legislative push, we’re seeing these initiatives at the state and local levels.”

Low-income students at some Montana and Oregon public colleges and universities can take advantage of the federally matched college savings accounts. And at the local level, San Francisco runs one of the most prominent public universal savings account programs, called Kindergarten to College Savings.

The U.S. Education Department has also tried to test out the colleges’ savings model, though somewhat unsuccessfully. In 2012, department officials rolled out a plan allocate $8.7 million to create some 10,000 savings accounts for students in certain GEAR UP programs.

But none of the GEAR UP grantees submitted applications for the money, according to Nathan R. Monell, president of the National Council for Community and Education Partnerships, which works closely with Gear Up participants.  

He said it was not necessarily reflective of a lack of interest in the idea but rather objections to the way the department was structuring and administering the effort. Among other things, there were concerns about finding matching grants and funding equity among all GEAR UP students.

“Some people have a lot of faith in the capacity of these programs to really help low-income families build assets, but there is also some skepticism of how much low-income students can actually save, since we’re talking about families who struggle for basic subsistence,” he said. "We're learning along with everyone else."

Tivol said that a growing body of research shows that college savings account “present huge opportunities, not just in direct asset accumulation but also in the aspirations of low-income students.”

Research by William Elliot, an associate professor who directs the Assets and Education Initiative at the University of Kansas, has found, for instance, that low-income students who have a savings account with as little $500 are three times likelier to attend college and four times likelier to complete compared to other low-income students.

For Katrina Verduzco, a freshman at the University of Arizona who participates in the program, said that once she was approved to open an account during her senior year, saving for the $500 minimum was a matter of cobbling together money from her three part-time jobs.

“I had never saved a dollar in my life,” she said, describing her monthly trips to the local credit union to deposit money into the account. She said that the exercise, combined with program workshops, taught her financial discipline.

“If someone says they’re going to give you $4,000, you do it,” said Verduzco, a psychology major who is the first in her family to attend college.  

Combined with other institutional aid, a high school scholarship and a Pell Grant, the “AZ Earn to Learn” grant allows her to attend the university without taking out loans. She is currently working toward saving another $500, so she can continue receiving the scholarship this fall. 

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