Encouraging College Savings
November 18, 2008 2:57 pm Personal and Family Contribution, Tax PolicyA topic being debated during the NCI Listening Sessions is personal and family contribution to the student’s education. Many aid administrators feel there has been a shift in the way families perceive saving for college. Wealthier families do not save because they feel entitled to student aid; poorer families do not save because they do not have the resources. Some financial aid administrators feel that one or more of the following approaches might encourage saving for college:
- Increasing expectations of personal/family responsibility as the student progresses through school
- Restructuring current 529 plans or other tax incentives
- Requiring community or military service and offering a college savings component
- Providing matching funds tied to saving and pursuing a college preparatory curriculum
What do you think of these ideas? How do you feel we can encourage families and individuals to save to support their education? Is it realistic to expect college savings in the 21st century?
November 19th, 2008 at 12:47 pm
I understand and have observed many of the attitudes described by my colleagues. I’ve seen parents who make ½ a million dollars say “I’m poor” and I’ve seen single mothers with no outside financial help try to squeeze $50 a month out of their sparse budget to help their child go to college. The problem, however, goes beyond parental and student attitudes. The question becomes, “Will throwing more money at the problem cause it to go away?”
Let me ask another question, have we identified what the problem really is? We can say it’s the parental and student attitude of entitlement. We can say it’s the lack of financial preparation. We can even say it’s the lack of knowledge regarding financial aid. But is the answer really throwing more money at the multitude of problems we see?
Should we create a savings plan that matches what families can contribute? Does that solve the issue of creating access to lower income families? If they already do not have the ability to save they are not going to chose putting $10 a month away over feeding their family or having money to ride the bus to work. A savings plan that matches what a family could contribute would definitely help the middle class. It would also help the affluent families, but it wouldn’t solve the problem of access for lower income families.
I’m not trying to discredit any of the ideas that have come from individuals. I think it’s wonderful that so many caring people want to make college affordable and viable for everyone. What I would like to point out, however, is it seems many “solutions” are created to try to address the multitude of problems that abound and nothing gets done because we are running around trying to implement the solutions (TEACH Grant, ACG, SMART Grant, new regulations…). By throwing money at problems and creating new programs aren’t we just creating new problems and making the system more confusing to parents and students (and ourselves)?
What if we just focused on one problem at a time? Why don’t we prioritize the problems and go from there? The biggest issue seems to be affordability. How can the government, state or federal, help to reduce costs? What can institutions do to help reduce costs? How can this be done in a fiscally responsible manner?
Let’s then move on to simplifying financial aid. Like many reports and findings have already pointed out, do we really need several federal grant and loan programs or could we consolidate them?
I in no way purport to have the magic bullet that will solve everything. I am, however, weary of watching the issues being talked about with no solid plan of action ever being developed. I applaud Sandy Baum and her committee’s recent report on their recommendations regarding simplifying financial aid. I think it’s wonderful that someone is actually trying to do something instead of talk about it. Let’s just hope the government listens…
November 25th, 2008 at 1:27 pm
Saving is an important part of planning for any financial need; education needs to be seen as another item to save for; not an entitlement. One of the difficulties that many families face is that the current savings programs provided are very specific and somewhat confusing.
Currently saving for multiple goals requires careful allocations of funds between a large number of specific programs; some of the most common are 529, 401k, 403, FSA, IRA. As savings is a long term strategy, and there are many unknowns along the way, it would be appropriate to consider a savings program that would allow families to save in such a way that they can meet multiple goals with out having to provide a split that may turn out to be incorrect 10 or 20 years down the road.
The program would provide the tax benefits with limitations on spending that existing programs have; but in a pool that could be spend on different items; medical expenses, education expenses, and retirement, allowing people to prioritize among important life goals at the time of withdrawal instead of the time of deposit. Another; perhaps more easier to swallow solution might be to allow 529 plan balances to be rolled to a 401K after a set time period.
December 11th, 2008 at 9:45 am
Amen, Andrea! I feel the same way.
December 11th, 2008 at 10:16 am
I agree that it is important for parents to plan and save for students educational costs.
I believe that parents need more support and education about college planning from the very beginning of the students educational experience (pre-school and primary grades)If parents are encouraged to save even small amounts in a simple plan (many families have no idea what a 529 plan or 401k or IRA is!)it might reinforce the idea of higher education attainment and the students themselves would be more hopeful about eventually attending college. It is truly sad to see so many middle and high school students who automatically rule out the possibilities of higher education attainment thinking that they or their parents can’t afford it, or the students are not prepared, without a sound basis of knowledge about the potential.
Early planning is essential. Educating parents about higher education financial planning, savings vehicles, and preparedness is also important. Parents need to be aware of how early savings can accrue over time and assist with higher education expenses. Family educational planning workshops, or college planning classes can be incorporated into every school orientation or parents night. Parental involvement is critical whenever possible.
Shifting thinking to preparedness and early planning is imperative. I like the idea of providing matching funds for tied to savings. We might benefit from thinking about ways in which there’s a reward for higher education planning and preparedness. For example, schools and colleges might put heavy weight on rewarding the attempts to save over time, emphasizing that the value of higher education has been demonstrated to be significant by the student/family as evidenced by savings over time. Perhaps if a parent/student has been consistently saving (regardless of the amount of the savings)there could be a match for every deposit(not every dollar). And, if there’s documentation that a parent/student wished to deposit but was unable to, due to a financial burden or crisis, a match could be applied regardless, so that less financially able families who demonstrate willingness and awareness but inability will not be penalized. Perhaps a community service component also be applied in lieu of savings as well. However, all families should be expected to attend the same workshops or classes as all intended recipients of the rewards.
I do not think that increasing the parental/students contribution over time is beneficial. I suspect that this will contribute to attrition.
December 11th, 2008 at 10:55 am
While I think it would be nice to encourage more saving for college, I do not feel that this will result in causing a large number of parents & student to save. If we are concerned about access to college…this is not an area that I would focus a lot of attention.
December 11th, 2008 at 7:19 pm
As the parent of a three-year-old and a financial aid administrator, I completely relate to saving for future college goals. The biggest challenge would be explaining this to parents of younger children who do not understand compounded interest. We have enough of a challenge helping students understand the difference between subsidized and unsubsized loans.
College savings plans are confusing. However, the confusion is mainly due to the fact that every state has a plan specific to that state (for the most part).
I think it would be a challenge to have an imact nation-wide. It might be more wise to start something new. I like the idea of having the plan more flexible as previously mentioned. A savings plan could combine saving for college and retirement. That would make it a little more simple. Tax breaks help encourage savings when parents understand taxes. Matching would be wonderful, but is it really up to the Federal government to provide this type of benefit?
College should be available to all who qualify. If there is extra encouragement for students to take college prep courses in the form of tax credit or scholarship, this would encourage students to take high school more seriously.
Bottom line…parents need to be involved with their children’s education. College costs should not be a surprise in high school. High school should prepare students properly with adequate coursework also. I think we are kidding ourselves if we think we can have a tremendous impace without starting by educating parents.
But I think it is worth a try!
December 11th, 2008 at 9:01 pm
We can all argue whether or not the need analysis formula or even the philosophy behind it discourages saving; I often explain to families that a dollar you have now is better than a dollar you hope someone’s going to give you in the future. But the bottom line is that the perception among families is that saving money = less financial aid. The result is families showing up on our campuses with no choice but to borrow more than they should.
Furthermore, no area of the need analysis formula, or aid in general, is subject to more manipulation and “gaming” of the system than the reporting and treatment of assets. Something needs to be done.
December 16th, 2008 at 12:07 pm
I agree with all of the above. Somethings needs to be done and perhaps from all sources. Parents and students need to buy into saving/paying for college and not viewing federal financial aid as an entitlement. College costs are too expensive, but how do we tackle that issue with institutions who continue to develop more and more programs to increase enrollment and the bottom line. Educating young parents would be a great start. Many are just beginning their lives with jobs and new family, but want to set aside $ for their children’s education. They don’t know where to start. The 529 plans are very complicated and challenge even those of us in the business of financial aid. How do you advise these young parents who are looking ahead. The need analysis may need to be reviewed. I agree with Andrea, we shouldn’t be throwing $ at the problem hoping it will go away. The root of the problem, in my opinion, is lack of family’s planning, prioritizing and taking responsibility for their children’s education. The federal FA programs were developed for those families in need, not for those who hire accountants to help crunch the numbers.
December 25th, 2008 at 7:19 am
Being a student who depends on financial aid, I understand the difficulties in getting aid and working towards getting grades to keep up the flow of aid and also to support myself at once. I really wish education was a little more easier. Germany for example has made education free and look at what they are going to have in a few years - an army of intellectually bestowed people!!
Gloria
May 7th, 2009 at 10:36 am
I think every 13 year old should automatically have a “federal college savings account” set up in his/her name (this is a great way for our banks to participate in the aid programs). Parents/students should be encouraged to save if they can. At the age of 18, there is some federal match component rewarding the student/family if they have been able to save some. Then when the student goes to college, the schools provide electronic info to the feds re: enrollment, SAP, verification, etc which triggers a release of federal funds into the student’s “federal college savings account”. The student can then transfer funds directly to their college by using a drop down menu with our school codes and an EFT. Remaining funds can be transferred into their own personal accounts for other expenses. Get schools out of the disbursement business, that would also general revenue for the feds because they would keep their money longer. Then they can program their systems to figure out how much to pay everybody based on the trigger information provided by the schools. Let’s redesign the whole system, not just tinker around the edges!
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