Newsom University Savings Account Proposal – Redundant or Not Enough?
Gov. Gavin Newsom wants to spend $ 2 billion to create a program to give 3.8 million low-income students at least $ 500 in college savings. Some critics call it redundant. Others say to start at birth.
Around the same time last year, California was in Chicken Little mode, warning that the tax sky was falling. Today, the state is so out of sight that Gov. Gavin Newsom is proposing to spend a lot on college savings accounts for children.
But it’s not clear whether his plan is the best way to do it, or if it even has to exist, as it duplicates programs already in place.
As part of the plan proposed last week, the state would create savings accounts for low-income K-12 public students with an initial deposit of at least $ 500. Families could add to it until it is time for the little one to go to college. It would cost around $ 2 billion – all money from the COVID-inspired federal stimulus – and help 3.8 million students initially.
Beginning the following year, the newly formed entity, the California Opportunity Fund, will deposit $ 500 to each first-year student in a public school deemed low-income or on an English-language learning program. Welcomed youth and homeless students would receive an additional $ 500. Estimates put the annual cost at around $ 170 million in state money.
“It’s an opportunity to fight generational poverty. It’s an opportunity to stretch the spirit of a college,” Newsom said.
Birth or first year?
Helping low-income families with college savings accounts is one way to solve the racial wealth chasm in the United States, where the typical white family owns eight times the wealth of black families and five times the wealth of Latino families. -american. It’s also in line with Newsom’s goal of increasing the percentage of adult Californians with a college degree by 2030 from less than 50% to 70%.
Since college savings programs are relatively new, it’s hard to say for sure whether these programs are boosting college enrollment, according to a federal analysis last year. However, he did highlight a 2017 article that found that Boston students with college or high school college savings accounts were slightly more likely to enroll in a four-year college than a community college. .
Overall, low-income families do not participate in college savings accounts, the most popular being 529 plans. In a 2016 report, the Federal Reserve calculated that only 0.3% of low-income families had 529 such plans.
Newsom touted research from Washington University in St. Louis that followed about 1,300 Oklahoma families with newborns who received at least $ 1,000 through a study on college savings. Researchers have followed these families since 2008, finding that students “have more hope for the future, have fewer behavioral problems, have a more positive academic self-image, and have better math skills.” The findings are consistent with Newsom’s message that these programs foster a college culture at home.
But this research emphasizes that these programs must be universal and begin at birth. The governor’s proposal is neither: it comes after the children are in first grade and only if they are found to be low income. His plan also excludes students in private schools, which enrolled 7% of Kindergarten to Grade 12 learners last year.
Newsom’s office wouldn’t say why their plan focused on first graders rather than newborns.
“We would like all children to be included because the economic conditions of children change over time,” said Margaret Clancy, director of the Oklahoma experiment. Still, her team’s research shows that the biggest gains go to low-income students, so targeting children from those families as Newsom’s plan proposes “is an advantage,” she said.
Even if student families do not contribute money to the accounts beyond what the state distributes, wealth can accumulate over time. According to researchers from the Oklahoma program, the initial $ 1,000 placed in a child’s account in 2007 rose to $ 1,900 in 2019, although its value fell to $ 700 at the start of the Great Recession.
However, the later a child receives money, the less impact it can have on improving a child’s odds of going to college – for example, creating higher expectations about getting to college. a degree, increase optimism and inspire families to save more money for college. . A later deposit also means fewer years for the account to earn interest.
Newsom’s plan ensures that money tied to a student does not count towards their eligibility for financial aid. The goal is to supplement, not supplant, the cost of attending a student with funds “that otherwise would not be covered by their financial aid program,” said Chris Ferguson of the Department of Finance. The funds in the accounts would be exempt from state taxes.
But this policy allows some low-income recipients when they are young to be better off by the time they are ready to attend college, and so far there is no language in determining whether students still need the money. line.
Already existing programs
The City of Oakland maintains two children’s savings accounts – one for newborns and one for children in kindergarten. The Brilliant Baby program limits eligibility to families who receive some kind of state or federal grant for low-income households. Newsom once helped establish a savings account program ten years ago in San Francisco when he was mayor of the city.
In addition, the state approved two years ago $ 25 million in one-time funds to open a children’s savings account for every child born after 2020. This program is expected to start operating this year, but the money is not can actually last more than a couple. years.
So it’s not entirely surprising that the Legislative Assembly’s Chief Advisory Group is calling Newsom’s proposal redundant. In comments shared with CalMatters, the Office of the Legislative Analyst wrote that the state could simply add money to this program rather than creating a new one. “Having one college savings account rather than two would be easier for families to navigate, thus encouraging use of the program,” the advisory group wrote.
Having a statewide program reduces the risk that families will lose the money they were originally promised compared to some of the dozens of local college savings programs. The Glendale Unified School District received a state grant to seed $ 50 for each first graders last year. But students can only access money for college purposes if they have graduated from Glendale Unified High School. Newsom’s current proposal would allow students to use their savings accumulated at any US college eligible for federal financial aid – the only constraint is that the money should be used before the age of 35.
Phil Ting, assembly budget chairman, likes Newsom’s college savings plan, but thinks there is enough money to fund it and oversize the state’s financial aid program.
Students need financial help now, and the cost of college is forcing many people to drop out of school. For existing students – and Newsom’s very goal of increasing the number of Californians with college degrees by 2030 – launching college savings accounts doesn’t do much anymore.
Newsom’s May budget proposal did little to expand the state’s financial aid program, even though lawmakers want to dramatically increase the number of students eligible for the state’s financial aid. State and increase the aid they receive. But those conversations are still ongoing – and it takes both lawmakers and the governor to pass a budget.
There are also limits to how the state can use its new premium. The federal stimulus expires in 2024, so the money in this pot must be used up as soon as possible. “We’re trying to figure out how to responsibly use one-time dollars in a way that has maximum impact,” said Lande Ajose, higher education adviser for the Newsom government.
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