Center on Assets, Education, and Inclusion

September 15, 2015

One of the primary goals of higher education—and the motivation that spurs Americans to value it so highly—is its promise of financial security and upward mobility. By promising economic gains to all who invest their time and talents, higher education has tremendous potential to reduce inequality in America. It is supposed to be where futures are forged, and it serves as a proving ground in our presumed meritocracy. Rising college costs and mounting student debt have exacerbated Americans’ anxieties about the increasingly elusive nature of these potential gains, leading many to question whether the American Dream is being priced beyond their grasp. In response to these fears, politicians and media representatives have been talking a lot about a free college policy (typically at a two-year college, although some candidates have proposed tuition-free four-year studies, as well) as a way of combating high college costs and growing student debt. Admittedly, free college proposals might be an improvement over the current debt dependent system, which can deter low-income loan-averse students from attending college (Callendar and Jackson, 2005), reduce completion rates among students who make it to enrollment (Kim, 2007), distort career choices (Minicozzi, 2005), delay marriage (Gicheva, 2011), and lower the return on a degree among those who manage to graduate from a four-year college (e.g., Elliott and Lewis, 2015a; Hiltonsmith, 2013). However, the apparent superiority of ‘free college’ to the current, failing system does not mean it is necessarily the best investment for strengthening the education system’s ability to reduce economic inequality, which is one of the biggest challenges of the 21st Century.

Making college free is not without problems. While free college proposals have the singular purpose of making college accessible to all, they fail to consider that middle-income and high-income students are considerably more likely to attend and graduate from college in the first place (Bailey and Dynarski, 2011), which means they would benefit first and, perhaps, most, from reductions in tuition prices. It would seem, then, that any financial aid system for the 21st Century needs to work in concert with early education efforts to reduce the gaps in achievement so more children—including those currently disadvantaged—are prepared to attend college. Instead, today, early education, higher education, and economic mobility policies are often thought about and treated separately, which leaves too many gaps where too many children fall. In addition to failing to address issues related to early education, making two-year colleges, in particular, free may further create a two-tiered system with low-income and minority students disproportionately steered into these colleges because of their financial constraints, when their effort and ability might suggest they would benefit more from a more selective four-year university. This may intensify existing economic inequality because students who attend two-year colleges are, on average, less likely to graduate from college and earn less than students who attend more selective institutions (Looney and Yannelis, 2015). Further, free college proposals may not even make much of a dent in student debt. For example, in Sweden where tuition is currently free, about 85% of students leave with debt that averages around $19,000 (Phillips, 2013). This is because tuition is not the only costs students face. They also must pay for things like rent, transportation, fees, and food, and ‘free college’ does not reduce costs for all of those other essentials. Even among graduates of similar institutions, returns are unequal, given the disparities in our labor and capital markets. For those who do manage to graduate from a four-year college, our friends at the Federal Reserve Bank of St. Louis find that Hispanic ($68,379 income/$49,606 net worth) and Black American students ($52,147 income/$32,780 net worth) receive less benefit from having obtained a degree than their White ($94,351 income/$359,928 net worth) and Asian ($92,931 income/$250,637 net worth) counterparts with regard to their 2013 annual median income and median net worth (Emmons and Noeth, 2015). This suggests that strategies that focus only on college affordability may fail to achieve some of our most cherished aspirations for education. When it comes to investing in higher education as a path to the American Dream of equitable opportunity for all, then, ‘free’ may not produce the best results.

Here, it is suggested that a national Children’s Savings Account (CSA) program, if properly conceptualized and funded, might do more to actually reduce inequality than free college proposals, making them a better bet for our limited higher educational investment. CSA programs are typically initiated at birth or kindergarten. In these programs, families’ investments are leveraged with an initial deposit and matching funds to add public or philanthropic funds to families’ savings, usually at a 1:1 ratio. These steps are needed in order to begin to change the relative bargaining power of low-income families, something free college would fail to directly address (see Elliott and Lewis, 2015 for a discussion).

In our capitalistic society, financial assets are a necessary part of making the rules of society work for you. With regard to college itself, even after free college policies are initiated, low-income families will still find it hard to use the rules of the higher education system to their advantage. Their bargaining power will be less when it comes to choosing the type of postsecondary education they attend because they will feel constrained financially and be directed toward attending a two-year college.

Therefore, I suggest that the conversation about CSAs must also include a conversation about these accounts as a mechanism for facilitating a robust wealth transfer at different stages along the life course. Wealth transfers have the potential to augment the effects of CSAs. This is because, even though research has shown that low-income families can save (Sherraden, Schreiner, and Beverly, 2003), they save small amounts (Mason, Nam, Clancy, Loke, & Kim, 2009). As a result, CSAs may run the risk of disproportionately favoring more advantaged children who can save more in their accounts if they do not also include transfers.

In the book that I co-authored with Melinda Lewis, The Real College Debt Crisis, one of the things that jumps out at readers in chapter two, is how asset transfers at different developmental stages in an individual’s life work to create advantage. If wealth transfers are not at the center of a discussion about CSAs and only the potential indirect effects (e.g., increased college expectations, improved socio-emotional skills, etc.) of having an account are discussed, there is the risk that CSAs will become inadequate replacements for things like providing low-income students with a fully funded education and will not provide the assets children need to have a real opportunity to achieve economic mobility.   

As envisioned here, CSAs could revolutionize the financial aid system by better equipping the higher education system to act as the great equalizer.  CSAs have a lot to offer in terms of: (1) assisting students to pay for college in a way that works in concert with early education efforts, (2) efforts to create equal access to college (i.e., not just a two year college but trade schools, and four year colleges as well), (3) efforts to raise college completion rates, and (4) efforts to ensure a strong return on a degree.

Early Education

In an experimental test of CSAs, the Center for Social Development at Washington University in St. Louis found that infants from households with incomes lower than 200% of the poverty line who were randomly assigned to receive CSAs demonstrated significantly higher social-emotional skills at age four than their counterparts who did not receive a CSA (Huang, Sherraden, Kim, and Clancy, 2014). These skills may be particularly important in closing the achievement gap. For instance, Durlak and colleagues found that children with improved social and emotional skills display attitudes, behavior, and academic performance that reflected an 11 percentile-point gain in achievement, compared to controls (Durlak, Weissberg, Dymnicki, Taylor and Schellinger, 2011). There is evidence, then, that CSAs are helping to equip these young children with the social and emotional competencies that, later, correspond to improved educational outcomes.

Further, Kim, Sherraden, Huang, and Clancy (2015), using experimental data, examine the impact of CSAs on the durability of parents’ educational expectations from birth to age four. They find that parents in the treatment group have higher expectations for their children and that their expectations are more likely than parents in the control group to remain constant or increase. Importantly, Hess, Holloway, Dickson, and Price (1984) find that mothers’ expectations when their child is in preschool are positively linked to their child’s sixth grade math and vocabulary.

CSAs also have potential for complementing early education efforts by helping to build a college-going culture where families, students, teachers, and the community see college as a desired goal. This might be particularly true of a city wide, state wide, or a national CSA program where every child receives an account. Further, CSAs have the potential to make college, something that can appear far off, feel like something that needs to be acted on now (e.g., Oyserman, 2013). Opening accounts early in the child’s life might signal to all involved that it is time to start thinking about college and how a family is going to save for it.  In fact, a recent study by Elliott and Lewis (2015a) suggests that CSA programs that include financial education may help to connect children with collegiate activities (e.g., attending a local college, talking about attending college, etc.).

Post-Secondary Enrollment and Graduation

Even when disadvantaged students achieve comparably to their privileged peers, they are less able to translate that achievement into higher educational success. Today, 41% of low-income students with the top math scores graduate from college compared to 74% of high-income students with the top math scores. Financial status seems to matter even more than academic performance; low-income students with the top math scores have the same chance of graduating college as high-income students with next to the lowest math scores (see National Center on Education Statistics, 2015). Correlational research suggests that children’s savings show some potential for improving a low-income student’s chances of making it all the way to graduation: Children in low- and moderate-income households who expect to graduate from college and who have school-designated savings of $500 or less are about three times more likely to graduate college than children who only expect to graduate from college (Elliott, Song, & Nam, 2013).

Post-College Financial Health

These effects on children’s educational expectations and subsequent outcomes are noteworthy, standing in stark contrast to results of many other efforts to improve children’s financial statuses. However, it is perhaps in the post-college period that CSAs most differentiate themselves from other forms of financial aid. Importantly, it is here that education’s efficacy as a catalyst of economic mobility is most imperiled. The experience of owning a savings account and the cultivation of pro-savings habits may position young adults to capitalize on the economic advantages that are, for most, the motivation for attending college in the first place. For instance, Friedline and Elliott (2013) find that children between ages 15 to 19 who have savings are more likely to have a savings account, credit card, stocks, bonds, vehicle, and a home at age 22 to 25 than if they did not have savings of their own between ages 15 to 19. Moreover, Friedline, Johnson, and Hughes (2014) find that the overwhelming majority of young adults own a savings account at or before the acquisition of all financial products including checking, CD, money market, savings bond, stock, and retirement accounts.

What the evidence suggests is that CSAs may be a gateway not only to greater educational attainment, itself a conduit of economic mobility, but also a more diversified asset portfolio. As such, it might matter little if children are able to accumulate large balances of “their own” assets in their savings accounts; instead, the test is whether, as a gateway financial instrument, CSAs lead to greater asset accumulation in other forms such as stocks, retirement accounts, and real estate. For example, Friedline et al. (2014) find that while owning a savings account as a young adult only contributed $50 toward liquid assets, the added contribution of combined stock and retirement accounts—themselves products of savings account ownership—was $5,283.

This asset building not only stands in sharp contrast to the bleak financial fortunes of heavily indebted recent college graduates, but may also position young adults for significantly improved economic outcomes over their lifetimes—returns that even a free college education would not provide. For example, the Pew Charitable Trust (2013) finds that capital income has a strong relationship with moving up the economic ladder. They find that Americans who move from the bottom of the income ladder had 6 times higher median liquid savings, 8 times higher median wealth, and 21 times higher median home equity than those who remained at the bottom. So, by building a more diversified asset portfolio, CSAs may result in increased asset accumulation, which, in turn, may lead to higher odds of ascent. In the end, CSAs not only have the potential to help students and families fully pay for college, but also to help them to prepare for college while potentially helping to reduce economic inequality in a meaningful way.


While small amounts of savings can potentially lead to improved expectations for college, a greater chance of enrolling in college, completing college, and a more diversified asset portfolio in young adulthood, which are all important, the reality is that low-income families on their own cannot save enough money to fully pay for college. But, CSAs not only provide the opportunity for individuals to build assets, they become a vehicle for a wealth transfer as well. The idea of a wealth transfer is often left out of discussion on CSAs today, I think because it seems like too much to ask given the gridlock in Washington DC. Nonetheless it is wholly consistent with American history, with our collective narrative of individual effort, and with our shared identity. In the 19th Century there was the Homestead Act and in the 20th Century there was the GI Bill. In the 21th Century, there has yet to be a significant wealth transfer, a routine correction in the American capitalist system.

It is estimated that President Obama’s free college plan would cost about $6 billion. In some ways this would be one of the biggest asset investments this country has seen since the Homestead Act or the GI Bill. We should demand of it, then, that it do more than benefit middle and upper income students, and that it aspire to more than just cancelling out tuition bills. We should ask, instead, if free college would be the best use of these funds for achieving the goal of providing a true opportunity to achieve economic mobility for all Americans. While proponents of free college have committed themselves to making this case, the CSA movement has not similarly staked out a coherent and unified claim for a significant wealth transfer.


Bailey, M. J., and Dynarski, S. (2011). Inequality in postsecondary education. In G. Duncan & R. Murnane (Eds.), Whither opportunity? (p. 117‒132). New York: Russell Sage Foundation.

Callender, C. and Jackson, J. (2005). Does the fear of debt deter students from higher education? Journal of Social Policy, 34 (4), 509-540.

Durlak, J. A., Weissberg, R. P., Dymnicki, A.B., Taylor, R. D., & Schellinger, K. B. (2011) The impact of enhancing students’ social and emotional learning: A meta-analysis of school-based universal interventions. Child Development, 82 (1), 474–501.

Elliott, W. and Lewis, M. (2015a). The Real College Debt Crisis: How Student Borrowing Threatens Financial Well-Being and Erodes the American Dream. Broomfield, CO: Praeger.

Elliott, W. and Lewis, M. K. (2015b). Transforming 529s into children’s savings accounts (CSAs): The Promise Indiana model. Lawrence, KS: Center on Assets, Education, and Inclusion (AEDI).

Elliott, W., Song, H-a, and Nam, I. (2013). Small-dollar children’s saving accounts and children's college outcomes by income level. Chil­dren and Youth Services Review 35(3), 560–571.

Friedline, T., and Elliott, W. (2013). Connections with banking institu­tions and diverse asset portfolios in young adulthood: Children as potential future investors. Children and Youth Services Review 35, no. 6: 994–1006.

Friedline, T., Johnson, P., and Hughes, R. (2014). Toward healthy bal­ance sheets: Are savings accounts a gateway to young adults' asset diversification and accumulation?” Federal Reserve Bank of St. Louis Review 96(4), 359–89.

Gicheva, D. (2011). Does the student-loan burden weigh into the decision to start a family? University of North Carolina at Greensboro. Retrieved from

Hiltonsmith, R. (2013). At what cost: How student debt reduces lifetime wealth. New York, NY: Demos.

Huang, J., Sherraden, M., Kim, Y., & Clancy, M. (2014). Effects of child development accounts on early social-emotional development. JAMA Pediatrics, 168(3), 265-271.

Kim, D. (2007). The effects of loans on students’ degree attainment: Differences by student and institutional characteristics. Harvard Educational Review, 77(1), 64-100.

Kim, Y., Sherraden, M., Huang, J., and Clancy, M. (2015). Child Devel­opment Accounts and parental educational expectations for young children: Early evidence from a statewide social experiment. Social Service Review, 89(1), 99–137.

Lerner, M. (2015). Who benefits the most from ‘free’ college tuition? StarTribune. Retrieved from

Mason, L. R., Nam, Y., Clancy, M., Loke, V., & Kim, Y. (2009). SEED account monitoring research: Participants, savings, and accumulation (pp. 1-81). St. Louis, MO: Center for Social Development, Washington University in St. Louis.

Minicozzi, A.. (2005). The short term effect of educational debt on job decisions. Economics of Education Review, 24(4), 417-30.

National Center on Education Statistics. (2015). Postsecondary attainment: Differences by socioeconomic status. Washington, DC: Author. Retrieved June 15, 2015 from:

Oyserman, D. (2013). Not just any path: Implications of identity-based motivation for school outcome disparities. Economics of Education Review, 33(1), 179‒190.

Pew Charitable Trusts. (2013). How much protection does a col­lege degree afford? Pew Charitable Trusts (Washington, D.C.).

Phillips, M. (2015). The high price of a free college education in Sweden. Time. Retrieved from education-in-sweden/276428/

Sherraden, M., Schreiner, M., & Beverly, S. (2003). Income, institutions, and saving performance in individual development accounts. Economic Development Quarterly, 17(1), 95-112.