How College Savings Policies Help the Wealthy

How College Savings Policies Help the Wealthy

This is a repayment option for students with certain federal school loans. It allows you to base your payment amount on how much you make so that your installments are more affordable. It is less than what you’d have to pay under the typical 10-year repayment plan.
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Public concern over the unabated rise in college costs and student debt has the field of 2016 presidential contenders vying for solutions. Reflecting what our education policy colleagues christened the “kitchen sink” approach, two weeks ago, Democratic front-runner Hillary Clinton rolled out her New College Compact, a $350 billion package that covers ground from expanding AmeriCorps to student loan refinancing.

This proposal is an aggressive response to an urgent need. In the new labor market, a college degree isn’t a professional enhancement; it’s a prerequisite for employment even in fields that only 10 years ago were staffed by high-school graduates. Now, instead of needing a college degree to be an accountant, you also need one to be an accountant’s file clerk.

But even for the students who do earn this credential, student debt–even at modest levels–can undermine its potential economic advantage. Instead of a sprawling assortment of ideas, what we recommend is a “soup to nuts” approach–one that advances a single intervention to improve outcomes from the beginning to the end of the educational pipeline. It’s also an approach that’s missing from every proposal so far: replacing a debt-driven model with a wealth-driven one.

[Related: 5 Savvy Ways to Save For Your Child’s College Education]

The decisive role that wealth plays in determining who goes to college, and their subsequent financial well-being, is clear early on. Wealth allows parents to purchase homes in competitive school districts and invest in enrichment activities, both of which lead to improved educational performance and preparation for college. Importantly, wealth also creates the perception in children that going to college is expected and achievable, beliefs that are necessary to summon the effort and persistence to reach that goal.

Predictably, the absence of wealth robs children of that belief. A study of 7th graders eligible for the national free and reduced school lunch program indicates that perceiving financial circumstances as a barrier to college can result in decreased aspirations and effort. Overall, the Department of Education found that among college-qualified low-and moderate-income students, half failed to enroll in a four-year institution because of cost, and another quarter failed to enroll anywhere.

Read more at New America.