Despite COVID, families prioritizing college savings
Encouraging to see focus on long term goals
THE ECONOMIC DISRUPTION induced by the COVID-19 pandemic has exposed the extreme financial vulnerability that exists in America. The sudden economic crisis revealed what experts have been saying for years: an overwhelming majority of US households do not have the financial cushion to weather an economic shock like the present one.
As a higher education advocates, we’ve worked on various initiatives to aid low-income families in saving for college. In March and April of this year, as the number of unemployment claims broke new records each week, we worried that the COVID-19 economic crisis would set these efforts back by years. However, as the crisis continues to unfold, we are seeing encouraging signs that many families are still committed to saving and understand the long-term stability it can provide.
In Massachusetts, parents of newborns are continuing to enroll in the state’s college savings program, BabySteps, at nearly the same rates they did before the crisis. The percentage of families registering interest in opening a college savings account has remained strong throughout the pandemic. In May, 45.9 percent of families with newborn children registered interest in the program, compared to an average of 48.7 percent during the previous months since the program was launched. Despite the fact that the health crisis has interrupted the program’s outreach and marketing efforts, there has been a steady increase in the number of families opening a BabySteps college savings from the start of the program through the pandemic to May.
While this may unfortunately change if the economic crisis persists and worsens, these encouraging figures indicate that new parents are recognizing and seizing the opportunity to save for their children’s education, even in tough economic times.
“Most families said they remain committed and would deposit as much as they could,” says Araniz. “Inversant families know that every little bit counts and made a commitment to be prepared. They want to make sure the savings they promised themselves would actually be there when the time comes for their children to go to college.”
“We haven’t seen families withdrawing funds. Once again this is because they have worked incredibly hard to make sure those savings add up,” she added. “Families continue to engage with our program, even if some families have to reduce the amount they save during this crisis.”
Another piece of good news on the college savings front is that despite the significant turbulence in the stock market during the last few months, students entering or in college haven’t been negatively affected with large losses in their 529 college savings plans. This is because most 529 savings plans are carefully invested in age-based portfolios, ensuring that as a child’s age approaches their college years, their savings are placed in safer, low-yielding investment options, shielding them from large market fluctuations that can disrupt their savings right before they need them.
According to economists, low levels of assets, even more than low income levels, entrap the poor when a crisis occurs. Unfortunately, data shows that less than 1 percent of low-income households have a savings account dedicated to college.States could and should do more to facilitate the opening of college savings accounts, and incentivize savings with seed money or matches. Many states, like Massachusetts, already successfully do so. Any reason to save is a good one. But providing for the future of a family’s children is the best reason of all.
Bahar Akman Imboden is the managing director of the Hildreth Institute, a nonprofit research and policy center dedicated to restoring the promise of higher education as an engine of upward mobility for all. Bob Hildreth is the founder of the Hildreth Institute, Inversant, and other nonprofit organizations with complementary missions to get low-income students to college.