New federal legislation could help more kids save and plan for college

From the halls of Congress to state legislatures and city councils, support is growing for efforts to provide more kids with the opportunity to save for college through special savings accounts given to them as early as birth. Programs across the country, such as San Francisco’s Kindergarten to College and Nevada’s College Kick Start, currently help some 225,000 children plan for postsecondary education and develop savings habits that can last a lifetime.

While these programs have had a significant impact in the communities where they operate, millions of children in other states are missing out on the chance to open their own college savings accounts and take charge of their financial futures. That’s why broader federal efforts are needed.

{mosads}I know from personal experience how important these accounts can be. As a child, my family was always in financial crisis. I knew what bouncing a check meant before I entered kindergarten. My father amassed huge debt and eventually filed for bankruptcy. We were evicted from our home multiple times.  By age 16, I was in foster care.

When I set off on my own at age 18, I knew I needed to take a different path.  My foster care caseworker referred me to a program in my hometown of Denver – Bridging the Gap (BTG) at Mile High United Way.  BTG required that I take financial literacy classes on budgeting and credit and helped me open a matched savings account called an Individual Development Account (IDA).

IDAs, often called Children’s Savings Accounts when opened for minors, offer incentives to help children and youth increase savings. The accounts are typically seeded with a small amount of money and matching contributions are provided for deposits made by family, friends and the young people themselves. Withdrawals are restricted to a long-term use, such as paying for college or buying a home. 

Thanks to the generosity of private donors, I was able to earn dollar-for-dollar matches up to $1,000 each year I participated in the BTG program.  Over the course of seven years, I contributed $7,000 to my IDA, which accumulated to $14,000 with matches.  I used part of the proceeds to pay tuition at the University of Colorado, Denver, where I graduated in 2012.  Later, I used some of the savings to buy a car, which I still drive today and which made it possible for me to both work full time and attend school full time.

Research indicates that even modest savings can have a profound impact. According to a report from the University of Kansas, children from low- and moderate-income families with college savings of just $500 or less are three times more likely to enroll in college and four times more likely to graduate.

Making these programs work at the local level requires government and private financial support to both seed the accounts and provide matches on future deposits.  This has been an obstacle in states like Colorado, which failed to pass promising college savings account legislation last spring due, in part, to financial roadblocks.

Current efforts at the federal level could provide the incentive local and state governments need to move forward with savings account initiatives. For example, Rep. Ben Ray Luján’s (D-N.M.) recently introduced Save for Success Act would provide matches in the form of a tax credit for families every year they save for their child’s future education. Under the legislation, families could make an advance claim up to $250 from the American Opportunity Tax Credit by making deposits for their children in a 529 college savings plan or other qualified Children’s Savings Account program.

The even more far-reaching USAccounts Act, introduced by Reps. Joseph Crowley (D-N.Y.) and Keith Ellison (D-Minn.), would provide a small nest egg for every newborn by automatically opening a savings account in their name, complete with an initial $500 deposit. Annual deposits of up to $500 would be matched and additional matches would be available for lower-income families. USAccounts could be used to pay for postsecondary education expenses or rolled over into an IRA to save for retirement, purchase a home or start a business.

As one of just 3 percent of former foster youth nationally who graduate from college, I know that a program like USAccounts could be a game-changer for millions of low-income kids.

Today, 10 years after I was introduced to the Bridging the Gap program, my husband and I own a house that I helped purchase with remaining proceeds from my IDA.  I have a college degree and a career that I love, working with teens in foster care. My IDA was a critical tool in my journey.  Let’s make sure all young people have the same opportunity I had to aspire to and achieve my college dreams.

Victoria Shuler is the legacy project coordinator with Advocates for Children-CASA in Aurora, Colo.