Can a program that deposits $50 in a college savings account for every kindergarten student really make a difference? San Francisco’s Kindergarten 2 College (K2C) program began making just such deposits in 2011. Since then, similar children’s saving account programs have spread across the country, with 128 active programs covering 5 million children operating in 38 states as of the end of 2022, according to a report from Prosperity Now, a not-for-profit promoting economic opportunity.
This past May, the first class of kindergarteners enrolled in K2C graduated from high school with an average of $1,422 in their K2C savings accounts—-an amount that includes contributions from parents and additional cash incentives from the program, including a $20 match each year a family saves and $20 for initially logging onto the account. While $1,422 might sound like a pittance compared to the nearly $40,000 average annual sticker price for tuition and fees at a private four-year college, it’s enough to pay for a year at California’s cheapest in the nation community colleges.
Moreover, academic researchers and backers of the program say the very existence of college accounts—even those with modest balances—gets more children from lower income families thinking about college as an option, and ultimately, significantly raises the chance they’ll enroll. “For kids, when they have a children’s savings account, it allows them to begin to think about college in a different kind of way,” says William Elliott III, a professor of social work at the University of Michigan, who has done extensive research on these accounts and whose work inspired K2C.
Elliott began investigating the relationship between savings accounts and college attendance when he was studying for his master’s in the early 2000s and wanted to better understand one of his own childhood experiences, growing up in a very poor neighborhood. “There was this one kid whose father had a savings account for him. He talked about that account and was saving for him to go to college,’’ Elliot recalled in a podcast. “And we always thought a little bit differently about the kid because they had this plan for him to go to college.”
In 2009, Elliott and a coauthor published a study finding children with college savings accounts were nearly twice as likely to expect to attend college as those without any dedicated accounts and that those who expected to attend college also did better in school. “When you have an asset, it allows you to begin thinking about your future in a more tangible way,’’ he says.
As Elliott describes it, there’s something of a virtuous loop here. Younger children naturally view college as being “far away” and not anything to immediately consider. But a college savings account makes that future feel much closer, meaning they should plan to act on it now. At the same time, the provision of the savings accounts through a school means teachers may begin to add financial literacy to their lesson plans, which further encourages savings and longer term thinking and planning.
The amount San Francisco contributes to the K2C accounts is tiny compared with proposals for baby bonds to narrow the racial wealth gap. One such plan introduced in the last Congress, for example, would put $1,000 in an account for every child in the U.S. at their birth, with the government making additional annual contributions for low and middle income families. By the time a low-income child reached 18, the account could total $50,000. Such large-scale plans have no chance in today’s Congress, but smaller college savings accounts are proliferating at the local and state level.
Elliott’s original 2009 study caught the attention of José Cisneros, San Francisco’s then and current elected treasurer, who created the K2C program along with then San Francisco Mayor (and now California Governor) Gavin Newsom and Citibank, which holds the money in deposit only accounts. Cisneros wanted to do something about the stark difference in the college going rate between rich and poor kids. According to a new Brookings Institution analysis of a national longitudinal survey of students who started ninth grade in 2009, only 51% of students from the lowest income quintile had started college within 18 months of their expected high school graduation, while 89% of those in the top income quintile had started college.
“We were really troubled by that very distinctly different outcome set based on a family’s wealth,’’ says Cisneros. Elliott’s research suggested to Cisneros that city funded accounts might help narrow the gap.
One of K2C’s success stories is Thailyah Miller, 18, who will be using the money from her account this fall at San Jose State University, where she plans to major in public health with a minor in Black women’s studies. “My family, they didn’t go to college, they didn’t really know how to afford it,’’ she says. Miller began paying serious attention to the K2C program in high school. “Just knowing that there was an organization in my city to help me afford college, I was really blessed,” she says. “From there, opportunities were just flowing towards me.”
Full disclosure: Miller’s willingness to serve as a student ambassador for the program has won her a $500 scholarship and other incentives deposited into her account. But that’s actually a good argument for the K2C program, since it offers a simple account that parents, private donors and community and scholarship groups can all contribute to. Parents can set up automatic deposits from their paychecks (such activity earns additional publicly funded incentive payments) and also have the option of transferring funds to California’s state-run 529 college savings program, CA ScholarShare.
A crucial part of K2C, as Cisneros and Citibank see it, is that children get a college savings account even if their parents are unbanked—meaning they don’t have a conventional bank account. “In addition to providing banking services, it’s really the Citi Start Saving platform that’s the key technology piece that allows San Francisco and other communities to move from saying they want to run these [children’s savings account] programs to actually having an efficient mechanism for executing these programs,” says Brandee McHale, president of the Citi Foundation and head of Community Investment and Development for the big bank.
Historically, the more complicated 529 accounts, which were created by Congress in 1996, have been used mostly by middle- and upper-income parents and grandparents to save for college in a tax-advantaged way. Among other things, the income tax breaks mean more to the better off, you need to have money to save in a 529 and you usually need another financial account to move money into a 529.
A new statewide children’s account program California launched last year with a push from Newsom, combines larger automatic accounts for poorer children with a smaller incentive to encourage families who can save through 529s to do so.
All newborns, regardless of family income, get a $25 deposit into a CalKIDS account and are eligible for another $25 when their parents register for the account, plus another $50 if their parents also open and link a ScholarShare529 account—a conventional 529 account that takes parental contributions. In addition, last year the state made one-time $500 to $1500 contributions to CalKids accounts for 3.4 million low-income students in kindergarten through 12th grade, at a cost of $1.9 billion. Infants, when they reach school age, will qualify for similar payments if they are low income. While the CalKids accounts are administered by the ScholarShare Investment Board, they’re not technically 529 accounts; distributions from the CalKids accounts are treated as nontaxable state scholarships.
It’s largely because of the California program, the Prosperity Now report notes, that the number of participants in college accounts increased 300% from 2021 to 2022. But the number of programs has seen a spurt too, with new programs opening last year in Greenbrier Valley, W.V. and Atlanta, as well as Michigan.
Based on the response from K2C’s graduating class, Cisneros is confident all the new programs will make a difference. “The graduating seniors have said ‘nobody I knew was talking about college,’” says Cisneros. “‘Nobody was talking about what I would be doing after high school until they started talking about the K2C account. And then it all hit home. And I’m excited about my future.’”
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