Center on Assets, Education, and Inclusion

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In a time when wealth inequality increasingly threatens the U.S.—our sense of fairness and possibility, the fabric of our shared democracy, and the institutions that are supposed to undergird our economic opportunities--and when these anxieties are voiced particularly acutely by students who contemplate their own futures and question the ability of higher education to act as an equalizer in society, the discussion around student debt has grown stale. These conversations, usually consisting of the same few voices, echo with researchers investigating questions that all too often seek to maintain the status quo rather than challenge it and that seem, to a public plagued with disillusionment that borders on panic, divorced from their lived experiences. Within these confines, proposed solutions tend to mostly comprise tweaks around the margins (e.g., income-based repayment modification), rather than fundamental reconsiderations of how to finance higher education in a way that will simultaneously strengthen the return on a degree, improve educational outcomes such as attainment, and reduce wealth inequality. In this brief, I seek to provide a fresh look at what America gets from student loans. This begins with shifting the conversation from talking about whether or not college pays off for students who have to borrow to shining a bright light on the equity of having to pay for college with student loans. I do this by bringing together bodies of evidence that reveal: (a) the amount of wealth your family has matters for whether you will attend and complete college, (b) low-income and minority students receive less of a return on a degree than their wealthier, white counterparts, and (c) college goers—including those who graduate—with debt have less wealth than their peers without debt. This not only has implications for borrowers but for their children who grow up with less wealth and who will then be less able to use education to climb the economic ladder themselves. Given this, I conclude that a financial aid system for the 21st Century must not only help students pay for college but also help them build assets. Children’s Savings Accounts (CSAs) work on many fronts, from early preparation to college access to completion and then post-college financial outcomes, to address concerns about the differential return on a degree and wealth inequality. However, in order to make CSAs a true tool for fighting wealth inequality, they must be combined with a significant wealth transfer. Possibilities for this wealth transfer might include such approaches as augmenting existing scholarship or grant programs, such as the Pell Grant program, with opportunities for early-commitment asset building or diverting funds now going to poorly-targeted tax subsidies. It has been estimated that CSAs with a wealth transfer could reduce the racial wealth gap in America by 20% to 80%, depending on participation and the size of the investment in these accounts. This pivot to asset-based financial aid could be the centerpiece of a new economic mobility system that makes good on the promise made to American children, that through their own effort and ability in school they can achieve the American Dream.

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Children's Savings Account Brief Year 2016