ANN ARBOR, MI - Washtenaw County officials hope to use college savings accounts as a tool to fight generational poverty and empower low-income families.
Before he became a Washtenaw County commissioner, Justin Hodge, who is spearheading the effort, saw the value of children’s savings accounts as a way for some families to take the possibility of post-secondary education seriously.
Hodge calls the work “my baby” and says he is proud the county has been able to make it a reality with an equity-driven focus.
“If they have that kind of account from the time that they’re really young, by the time that they graduate from high school - even if there’s not a ton of money in the account - they’re still several times more likely to go on to post-secondary education because of the interaction with the account and them developing the mindset that they’re saving for something after high school,” Hodge said.
With the first set of funds for the savings accounts expected to be deposited around December 2022 or January 2023, the equity component of the accounts will provide children from lower-income families with significantly higher seed funding than those whose families have a higher income.
Approximately 2,300 children attending public schools in Washtenaw County in first and fifth grades will have college savings accounts started on their behalf this winter. All students who qualify for free-reduced lunch will have $500 invested into their 529 accounts, while all other students will have accounts start at the state minimum of $25.
The model also is intended for savings accounts to have a greater impact on school districts like Ypsilanti Community Schools, Lincoln Consolidated Schools and Whitmore Lake Public Schools, which overlap with lower access to opportunity areas on the Washtenaw County Opportunity Index.
The accounts are funded by $2.9 million in American Rescue Plan Act (ARPA) dollars. Washtenaw County government has made available an additional $3.78 million from its general fund to sustain the program over the next three to four years, incorporating two new grades of students each year in hopes of having a cohort of grades 1-8.
The county’s Office of Community Economic Development is collaborating with the Washtenaw County Intermediate School District to develop a community advisory committee that will establish a direction and policies and procedures for the program. The WISD also is in the process of hiring two grant-funded positions to coordinate oversight of the children’s savings account program.
Over the past few years, programs to enroll children in savings account programs have been established in different iterations at the city and state level throughout the country, including programs in Pennsylvania, Nebraska and Maine that enroll and deposit money into 529 savings accounts.
William Elliott, a professor of social work at the University of Michigan and leading researcher on college savings accounts, said children’s savings accounts plant a seed of institutional structure for families to begin thinking and talking about college with their children.
Elliott’s research on children’s savings accounts shows that children who have accounts designated for school - even when that amount is $500 or less - are three times more likely to enroll in college than children with no account.
“We have a fair amount of evidence that shows that when these accounts are in place, kids and families will talk more about the kid’s future and talk more about their post-secondary education,” Elliott said. “This is very important for them, having the sense that college, which is far off for many of them, is something you need to act on now.”
Washtenaw County Board Chair Sue Shink said that by providing more financial support to students whose families have lower incomes, the county is putting its priorities toward equity at the forefront.
“It’s saying to the students in our community, ‘We believe in you and we expect that you will be able to do this and we will work to support you along the way,’” Shink said. “So we have more work to do - creating these accounts isn’t the last piece.”
How it will work
With funds expected to be deposited into accounts for children in grades 1 and 5 toward the end of the year, enrolling those students at a cost of about $1.2 million. In each successive year, another cohort of children from first and fifth grades will automatically be enrolled in accounts until it includes a group of students in grades 1-8. Students attending public schools are automatically enrolled and can only opt out of the program.
WISD Grants Coordinator Sarah Hierman said the district has created a program coordinator position to identify and eventually work with an advisory committee to establish a direction for the program, including its objectives and policies and procedures. The Committee could include students, parents, teachers, principals and county and WISD representatives, among others.
The coordinator, who is grant-funded for three years, also will have a role in making the children’s savings account program sustainable beyond the initial cohort by establishing partnerships that will allow it to be an ongoing program.
The goal is to increase college expectation and the number of students completing post-secondary programs, bring parents into the financial mainstream and increase resources to high-poverty school districts.
“In general, this type of program really opens up a lot of doors for students who may not have realized post-secondary education as an option for them,” Hierman said. “We know that college-going costs are rising consistently year after year, and there seems to be, year after year, a growing gap in what students can afford, which plays really heavily into their decision whether or not they pursue post-secondary education.”
The WISD is in the process of creating accounts with the Michigan Education Savings Program (MESP), Michigan’s federally available 529 higher education savings plan with state tax advantages. The accounts will be managed by TIAA.
Investing in equity
Hodge’s overall vision is for equity-centered decision making. The county Board of Commissioners voted to use the Opportunity Index, created by the county and University of Michigan’s Poverty Solutions initiative, in making programmatic policy decisions that guide where the county invests.
Hodge said with the potential of future ARPA dollars being dedicated at the county level to things like a new financial equity center and a down payment assistance program, there is evidence that equity is at the core of the county’s decision making.
“This, I think, is one piece of the larger tapestry of financial empowerment-focused services that I’m hoping that we will provided the county,” Hodge said. “It’s a program that took us a long time to put together but it is one that I think will lead to transformative change in the county. We really wanted to make it as easy as possible for families and for students to have these accounts. The key thing for us was that we make it equity-driven and that’s why we wanted our students that are getting free or reduced lunch to get such a large investment.”
Elliott said there are exciting possibilities for the program, improving both financial and psychological outcomes for students and low-income families while making the accounts a subject of classroom discussion.
“It’s important that the accounts be progressive to narrow the wealth gap when it comes to paying for college,” Elliott said. “These accounts will help do that structurally, but also, kids and families understand that they are accounts that not only they can save in, but their family members can save in.”
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