How to Help All Families Save for College
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COMMENTARY | While Americans chase affordable higher education, the ability to save for college has never been more attainable.
For generations, access to good, affordable higher education and post-secondary training has helped millions of Americans improve their lives. I should know; I am the first-generation college graduate in my rural Illinois family. But unfortunately, the promise of attending college at a reasonable cost has been slipping away for years.
Since I was a teenager in the late 1980s, the average price of attending a four-year college in the United States has skyrocketed from $5,500 to more than $28,100 in 2018, badly outstripping the growth most American families have seen in their household incomes in the same timeframe.
Around the time I graduated high school, pioneering states across the country began introducing the first 529 college savings programs to help families plan for the rising costs of higher education. Created by a bipartisan act of Congress in 1996, 529 plans have served millions of families. Currently, 49 states and the District of Columbia offer these plans. As of June 30, 2021, families have opened approximately 15 million 529 college savings accounts and saved more than $460 billion for higher education. Although American families are increasingly taking advantage of 529 savings plans to save for education, they are far short of serving all families.
Twenty-five years ago, 529 plans were designed to help families save for future education expenses. They offer a range of benefits – including tax benefits, diverse investment options for all type of investors, and gifting platforms that make saving a whole-family and whole-community affair. If these college savings plans are going to continue to be successful, they must adapt and grow to engage all families of all socioeconomic backgrounds.
According to the U.S. Census, when college savings plans were first launched, approximately 69% of American children were white. Recent census data shows that 47.3% of American children are white. Today, over a quarter of children in America are Hispanic or Latino and a further 13% are African American.
America’s diverse children are raised by parents with a wide variety of education and income. In 2019, 43% of children lived in a household with at least one parent with a college degree. However, this varies widely by race and ethnicity. For example, an estimated 70% of Asian children had at least one parent with a college degree, compared to 54% of white children, 27% of Black children and 22% of Hispanic children.
To reach more racially diverse families, 529 plans are increasingly striving to embrace the socioeconomic diversity of America’s families. Many states have taken meaningful steps to make their 529 plans affordable and accessible to all by lowering minimum contribution amounts and cutting investment fees, both of which are barriers to opening accounts.
For example, in my home state of Illinois, where I oversee the state’s two 529 college savings plans, I eliminated the annual account fee and minimum contribution requirement and worked to cut investment fees by over 50%. Many plans across the country have similarly become far more affordable and taken steps to ensure families can open an account with as little as $1.
Many states have made it a top priority to enhance the affordability and accessibility of their 529 plans to ensure that families of all incomes, races, ethnicities and geographies are saving for the future cost of college. Many 529 plans are available in multiple languages and have created new marketing campaigns to engage diverse families. Several states incentivize all families to save by offering a range of scholarships, savings incentives and saving matches. We are starting to see more states, counties and cities offering child savings accounts, a type of 529 program, that provide families with seed deposits to help build assets for the future cost of college.
There is a lot more work that needs to be done, but one thing all states can agree on is that access to good, affordable higher education and post-secondary training helps millions of Americans improve their lives. The more families we can engage in saving for their children’s educational future – and the more those families represent the full economic, geographic, racial and ethnic diversity of our nation – the brighter our children’s futures will be.
Note: A previous version of this story incorrectly listed the author as the former Illinois state treasurer. The author is the current Illinois state treasurer.
Michael Frerichs is the Illinois state treasurer. He is the chair of the College Savings Plan Network, which offers tools and objective, unbiased information to help families make informed decisions about saving for college.
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