The rise in student loan debt has directed critical attention to the growing pace of college costs as well as the reliance on loans to finance those costs. For graduates entering the workforce in recent years, many are finding that they are unable to find the type of job they thought they were securing when they received their degree, if they are able to find a job at all. Consequently, more loans are going unpaid and student loan debt has become the only class of consumer debt where defaults are increasing.
While debt is a clear indicator of the flaws in the current way that postsecondary education is financed, a less visible consequence is the number of students who never make it to college because they perceive it as financially out of reach or the attrition of students who cannot afford to persist. Students need a way to finance college that helps them build the expectation that college is an attainable goal and the resources to make it a reality without compromising their future financial well-being.
Even in times of economic downturn, a college education continues to be a predictor of job protection and higher earnings. Despite these advantages, students from low income homes are earning a college degree at the lowest rate in three decades. The divergence of college costs and a family’s ability to pay has resulted in a gulf that traditional forms of financial aid fail to bridge. Unfortunately, this translates to a perception that college will be inaccessible in the minds of the students who have the most to gain from that credential.
While expanding existing financial aid for low-income families would help offset costs for students already on a college bound path, introducing these resources at the point of entry are unlikely to expand access to students who may have long dismissed a college education as a financially realistic option. A growing body of evidence, however, suggests that savings uniquely build both the resources and expectations necessary to increase access by students from low-income families.
Unfortunately, these families face considerable barriers when trying to save, including, ironically, from the financial aid and public assistance programs that are designed to increase college affordability and material wellbeing. Many of these programs have complex rules and explicit restrictions on the amount of savings families can have, making them less likely to save for both short-term and long-term goals. Removing these barriers, while providing additional savings incentives, could expand the ranks of college educated workforce, especially among students from low-income families.
This paper examines current trends in college cost and college financing, the role of savings in increasing postsecondary access and completion, and present a framework for developing a pro-college savings agenda and specific policy recommendations to overcome obstacles currently faces by low-income students.
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