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A college degree doesn't go as far as it used to, especially for low-income students. In their new book, Making Education Work for the Poor (Oxford University Press), authors William Elliott and Melinda Lewis examine the potential of children's savings accounts as a new tool to level the playing field. Elliott, a professor of social work at the University of Michigan, and Lewis, a professor of social welfare at the University of Kansas, responded via email to questions about their book.

Q: Education is no longer revered as the “great equalizer” it was once thought to be. Why is that?

Elliott: Americans’ doubts about education’s equalizing potency are, unfortunately, rooted in lived experiences. Research shows that college graduates from low-income families start their careers earning about one-third less than college graduates from higher-income households. Similarly, with regard to race, findings indicate that black college graduates (median income $52,147; median net worth $32,780) receive less benefit from having obtained a college degree than their white counterparts (median income $94,351; median net worth $359,928).

Even more problematic and harder to defend is the fact that black families whose head has earned a college degree have about 33 percent less wealth than a white family headed by a high school dropout. This counterintuitive and starkly inequitable outcome runs directly counter to the idea that effort and ability should determine outcomes. As a result of all of these dynamics, for many Americans, experiences with education just do not match up to the ideal. Importantly, however, this does not mean that we should give up on the idea of education as an equalizing force. Instead, we should pursue policies that bring it closer to the ideal.

Q: Can you talk about how changes to financial aid, such as the movement from need-based to non-need-based aid and the use of financial aid packages as a recruiting tool, are exacerbating pre-existing opportunity gaps?

Lewis: If higher education is to be a ladder to equitable opportunity, we need an approach to financial aid that provides more help to those who start out behind. Instead, the shift from need-based to merit-based aid and other changes in the financial aid system have the inverse effect. Instead of leveling the proverbial playing field, they reward privilege and ensure that those who begin with advantages preserve them.

Children who compete successfully for merit aid are often building on the investments their parents have been able to make -- in moving to neighborhoods with high-performing schools, providing intellectual enrichment in the home and through purchased services, registering for extracurricular pursuits in athletics and fine arts, and facilitating connections to avenues for leadership and service. Children without the same access to these opportunities can seldom demonstrate the same achievement. With postsecondary institutions funneling more of their scarce financial aid dollars into rewards for past accomplishment and less into investments in future success, early disadvantages compound, and many children find themselves on the wrong side of the opportunity gap.

Q: What is a children’s savings account and how does it work?

Lewis: Children’s savings accounts (CSAs) are interventions that aim to equip children with tangible financial assets and -- perhaps just as importantly -- cultivate the development of identities consistent with educational attainment. In many cases, children receive CSAs at birth; this timeline takes advantage of a longer period of asset accumulation in order to build balances and influence children’s development. CSAs are seeded with an initial deposit from public or philanthropic sources. This early capital provides all children with an investment stake in their own futures and sows the seeds of continued asset growth.

Features such as savings matches, incentives for reaching particular educational milestones, regular account statements and community- or school-based engagement efforts encourage family engagement with the CSA. This buy-in may take the form of additional contributions and/or behavioral and academic preparation for future education. CSA designs vary in terms of enrollment approaches (requiring families to sign up or automatically enrolling children), underlying financial instrument (529 college savings plans or traditional deposit accounts), and amounts and types of investments. Fueled by policy maker and educator concerns about the high costs of education, rising student debt and the declining fortunes of America’s youth, CSAs are proliferating. At the end of 2017, 54 CSA programs in 32 states served more than 382,000 children.

Q: Explain how children’s savings accounts offer low-income students an opportunity to get ahead through wealth accumulation instead of relying on “survival” policies, such as food stamps and welfare.

Elliott: What might be thought of as small-dollar CSAs ($1,000 or less) are likely insufficient to tackle wealth inequality in a meaningful way. However, CSAs could serve as the vehicle for policy that could; specifically, researchers find that a universal, progressive children’s asset-building intervention could reduce the Latino/white wealth gap by 28 percent and the black/white wealth gap by 23 percent. In their model, $7,500 went to low-wealth households with incremental declines to $1,250 for the highest-wealth households. This suggests that small-dollar CSAs need to be reimagined as structures for a much larger asset transfer. In our book, we outline putting $10,500 into these accounts; others have suggested even higher amounts ($20,000 to $50,000). This type of wealth transfer is not an entitlement, but a way of making people’s experience align with the American ideal, that effort and ability in school should determine success or failure -- not the family into which one is born.

Q: How could a significant wealth transfer be paid for?

Elliott: One promising way to help families build wealth in CSAs, even when they have little money to save, is finding ways to transform consumption into asset building. Specifically, there are models for combining small-dollar CSAs with rewards-cards programs. As currently implemented, these programs allow families to earn between a 1 percent to 5 percent rebate on purchases at the grocery store -- even when using SNAP [Supplemental Nutrition Assistance Program] benefits. These rebates go directly into their CSA, essentially transforming spending into saving. Another way might be combining CSAs with p-card programs (government credit cards) that provide a type of rebate every time an entity makes a purchase using a p-card. This rebate would go into a general education fund to then be disbursed into children’s CSAs -- potentially according to a progressive formula.

One city has estimated that they can make up to $15 million annually in such a program. Finally, CSAs could be combined with Promise programs, or financed by converting traditional scholarships into early-commitment awards. For example, the College Board has recommended supplementing the Pell Grant program with savings accounts for children who are likely to be eligible for Pell once they reach college age. This could begin as early as age 11 or 12 and incorporate annual deposits of 5 percent to 10 percent of the amount of the probable future Pell Grant -- thereby capitalizing valuable early asset accumulation within the footprint of existing financial aid programs.

Q: What are some of the biggest ways that children's savings accounts differ from traditional financial aid such as grants and loans?

Lewis: Our research investigating the effects of early educational assets on children’s outcomes -- in preparation for higher education, access and successful completion, and return on degree and overall postcollege financial well-being -- has highlighted how the way in which higher education is financed matters for determining how well people do. Where traditional financial aid is designed to be used to the point of exhaustion, children’s savings accounts are asset building. Where grants and loans both operate as consumption subsidies, CSAs connect children to wealth-building financial institutions from a young age and cultivate the patterns of saving and accumulation that facilitate lifelong prosperity. Indeed, it is educational assets’ direct effects on wealth inequality that we see as among its greatest potential contributions to closing the opportunity gap in the U.S. today. Assets also differ from most financial aid in timing.

Specifically, traditional aid is delivered at the point of enrollment, which means that it does not even attempt to influence some of the greatest inequalities today: social and academic preparation for higher education. In contrast, CSAs start early -- often at birth -- to change how children and parents think about their futures. This means that, dollar for dollar, assets can do more. By increasing expectations about the likelihood of postsecondary education, assets show positive effects on children’s social and emotional development and early school performance -- domains where traditional financial aid does not engage, but that offer tremendous promise for making education really work as the engine of opportunity in America.

Q: How do children's savings accounts help combat “wilt” -- or “melt,” as some call it -- in which some low-income students are admitted to but don't enroll in, or enroll in but don't stay in, college?

Elliott: Students with a CSA form a college-saver identity. That means that where other students may have only a rather vague sense of their college aspirations, students who have participated in early asset-building initiatives forge not only concrete expectations about their college enrollment and completion, but also have also identified savings as a strategy to pay for it. And this strategy seems to really make a difference, particularly as students encounter inevitable obstacles on the way to postsecondary completion.

My research has revealed that students with a college-saver identity are more likely to attend and graduate from college than even students who have only a college-bound identity -- that is, students who expect to go to college but have no strategy for paying for it. From this perspective, it’s not enough to wonder what’s beyond the horizon and hope that good things await; you have to believe that there’s actually a way to get there.

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