Oklahoma Experiments With Seeding Birth-to-College Savings Plans

The rising tide of college debt is causing enough concern among legislators that several states are now experimenting with ways to relieve future college students of the burden. The Kansas City Star’s Mara Rose Williams reports on an experimental program in the state of Oklahoma that seeded 40 college savings accounts of low-income families with $1,000 6 years ago at the time their children were born, so that when time came to pay tuition, the students wouldn’t need to take on debt to finance their education.

The program is called The SEED for Oklahoma Kids and its aim is to prove that if children have some money put away for college earlier, they’re more likely to believe that they will eventually go – and work harder to make it happen. William Elliot III, a social welfare professor at the University of Kansas, believes in the idea so strongly that he is advocating for such birth-to-college savings accounts to be established for every single newborn in the United States.

He has released his own report proclaiming that these birth-to-college Children’s Savings Accounts (CSAs) are “the most common-sense solution to the student debt crisis.”

Elliott earned his doctorate at the Center for Social Development at Washington University in St. Louis, which launched the Oklahoma project, and worked closely with those St. Louis researchers.

Following the ongoing test in Oklahoma, 16 similar children’s savings account programs since 2010 have been launched in cities or are in the planning stages.

San Francisco has been running a less ambitious version for some years. The city opens a savings account for every child of kindergarten age with a $100 starting deposit for those from low-income families and $50 for the rest. Withdrawals are limited to only college-related expenses like textbooks and tuition. More than 7,000 children have benefited from the program.

The state-funded plans could prove an interesting complement to already existing college-saving tools like 529 plans. The plans provide tax advantages for those who put aside money that will not be touched until the students reach college age.

The more commonly known is a traditional 529 account which grows based on investment returns and allows withdrawals once the child in whose name the account has been created reaches college age. However, many states – as well as the federal government – also provide a pre-paid option for those hoping their kids attend private colleges. This type of 529 plan allows families to lock in today’s tuition rates at over 270 private colleges and universities around the country.

Of course, a problem as widespread as college affordability demands more radical solutions as well. Instead of asking parents or states to open savings plans that will eventually go to cover tuition, two states are now considering plans that would allow students to pay off the expenses after they graduate – the so-called Pay It Forward proposals.

Tyler Kingkade of the Huffington Post reports that the plan would commit students to paying 3% of their annual income for 24 years after graduation. The percentage would remain constant regardless of the students’ actual income.

Hagan pointed out that this approach would protect graduates who have difficulty landing employment after earning their degree. Instead of being saddled with unaffordable debt payments, they would only be on the hook for any money once they start earning it.