The Potential of Inclusive 529 College Savings Plans

David Newville

There is strong evidence that attaining a college education is one of the best ways for low- and moderate-income students to climb the economic ladder. However, these students are less likely than their better-off peers to attend college and, if they do, less likely to graduate. One new and innovative strategy for addressing this shortfall is to promote and facilitate college savings among low- and moderate-income students and their families.

College savings can help address the rapidly increasing cost of higher education, which is a major barrier to college access and completion for low- and moderate-income students. Average college tuition and fees have risen at rates well above inflation for several decades, and this disparity has grown worse in the current decade. At the same time, average student debt loads have reached record levels, particularly for lower-income students. Savings, even in relatively small amounts, can make college more affordable for LMI students and make them less dependent on burdensome student loans.

Even more important, there is evidence that savings can change the expectations and behaviors of students and their parents when it comes to higher education. An emerging body of research has found a relationship between savings and important educational factors such as high school graduation, college attendance, and completion of a degree. The theory is that having even modest college savings can change the expectations of students and parents, which might lead students to work harder in primary and secondary school and see higher education as a more realistic goal.

This paper provides a menu of policy options for policymakers to use savings to address affordability and achievement gaps among low-income students.

View the paper here.