From the U.S. Government Accountability Office, www.gao.gov Transcript for: How Children's Savings Accounts Are Helping More Families Pay for College Description: Rising college costs have outpaced federal grant aid, leading to concerns that a greater burden of costs are being borne by students and their families. This can also contribute to concerns about student loan debt. To help families save for college, some states, cities, and nonprofit organizations created savings or investment programs, often referred to as Children's Savings Accounts. We talk with GAO's Melissa Emrey Arra--an expert on higher education and a director in our Education, Workforce, and Income Security Team--to find out more. Related GAO Work: GAO-21-10, Higher Education: Children's Savings Account Programs Can Help Families Build Savings and Envision College Released: December 2020 [Intro music] [Melissa Emrey Arras:] The program can help families save money and increase expectations that their kids will go to college. [Holly Hobbs:] Hi and welcome to GAO's Watchdog Report, your source for news and information from the US Government Accountability Office. I'm Holly Hobbs. Rising college costs have outpaced federal grant aid, leading to concerns that a greater burden of costs are being borne by students and their families. This can also contribute to concerns about student loan debt. To help families save for college, some states, cities, and nonprofit organizations created savings or investment programs, often referred to as Children's Savings Accounts. So, have these accounts helped? Today we talk with Melissa Emrey Arras, an expert on higher education and a director in our Education, Workforce, and Income Security Team about a new report examining the effects of children's savings account programs. Thank you for joining us, Melissa. [Melissa Emrey Arras:] Thank you for having me here, Holly. [Holly Hobbs:] So, Melissa, have these programs helped? [Melissa Emrey Arras:] The answer is yes. We looked at studies and found that families that participate in these programs do save more than those that don't. However, it's really important to keep in mind that the actual amount of the savings could be pretty low and likely not enough to cover the cost of college. There's an example that we have in our report about Oklahoma where families received money from the program and also saved their own money, and at the end of the day, the total they had saved was a little under $2,000. And while that was definitely better than the $300 that people had saved who hadn't participated in the program, it was not likely to cover the full cost of college. [Holly Hobbs:] And how do these accounts work? Are they like bank accounts or investment accounts? [Melissa Emrey Arras:] They can be either, actually. What happens is cities, states, or nonprofits set up these accounts, and they then put money into those accounts for the children and families participating. And it can really vary in how they're structured. For example, every baby born in the state of Maine is automatically enrolled and gets $500 deposited into their account. In other places, families have to opt-in to the program and enroll themselves, and they receive less money from the program in their account. The accounts themselves, as I mentioned, can be 529s, which are investment accounts, or they could be a traditional savings account, like you might have at a bank or a credit union. We did find, though, in our work, that most of the programs are using 529 accounts, and I think it's because they can potentially earn more through that type of an investment vehicle. [Holly Hobbs:] You had already mentioned that people who had children's savings accounts tended to save more than those who had more traditional savings accounts. But what is the advantage of saving through a Children's Savings Account? [Melissa Emrey Arras:] I think there are multiple advantages. One, if you think about it, you're getting free money. Like they're putting money into the account for you. And, aside from the money, there are a lot of other advantages that can come with participating in one of these programs. So, for example, some programs offer mentoring to help students apply to college and apply for financial aid, and other programs offer other types of services and supports for families. And it's interesting that, you know, you think about this program in terms of college savings, but there are other types of positive effects that can come from participating in these programs. So, for example, parents who participate in these programs are more likely to expect that their kids are going to go to college. And other study, actually found that participating in the program increased the reading scores of the low-income students. [Holly Hobbs:] And can you give us an idea of how many children's savings account programs are out there in the U.S. and what enrollment is like? [Melissa Emrey Arras:] In 2019, there were 82 programs, and they served about 700,000 children. [Holly Hobbs:] So, college expenses have increased a lot over the last couple decades. How have these accounts helped families prepare for those escalating costs? [Melissa Emrey Arras:] I think there are several things that the programs can do to help. So, one is, just by the very nature of the program, helping families save money. There are programs that also do financial education for families that are participating to help them learn more about finances in general, as well as college costs. So, for example, there's a San Francisco program that does field trips to banks, right? So, they bring parents and kids to banks to just learn about the banking system. And then, there's another program in Indiana that actually works with families of eighth-graders. So, you know, they're still in middle school, and it helps them calculate the cost of college for their child, and then develop a savings plan to address that cost. So, I think the programs can help on multiple fronts. [ Music ] [Holly Hobbs:] So, it sounds like children's savings account programs have had a positive impact in preparing families for the costs of college, but that the level of contributions can depend on family income. Melissa, your report looks specifically at strategies for engaging low-income families in college savings planning. Can you talk about some of these strategies? [Melissa Emrey Arras:] The focus on low-income families can come through on several fronts. On the one front, it's the program contributions, right? So, it's putting money in the accounts. Experts that we spoke with talked about the importance of that initial deposit. And putting that money in upfront can definitely help low-income families, because it's not connected to a requirement that day, you know, put in a certain matching amount to get funds. We also found that automatically enrolling families in programs can help them. It's often difficult for folks to navigate complicated enrollment paperwork. So, if there's sort of a simplified program, which just sort of automatically enrolls people, then it kind of reduces the burden to joining the program. If you're not able to automatically enroll, then the program needs to reach those families, and we looked at ways that programs are trying to do that. Some programs are teaming up with trusted organizations. You know, think about the Boys and Girls Clubs out there, to, you know, work with them to reach low-income families. Some of them are also working with particular low-income neighborhoods or simplifying the enrollment forms. [Holly Hobbs:] And I imagine COVID is having an impact on people's ability to save, right? [Melissa Emrey Arras:] The pandemic can strain the resources of lower income families, and can also affect the ability of programs to reach out to those families, given all the social distancing challenges, and we looked at one program that used to do a lot of activities in person. For example, they used to do an on-campus tour of a nearby university. But because of COVID-19, they weren't able to do that. So, instead, they actually created a virtual campus tour. And so, they were still able to give the students a sense of the college experience virtually in the COVID environment. [Holly Hobbs:] And Melissa, last question, what's the bottom line of this report? [Melissa Emrey Arras:] The bottom line is that the program can help families save money and increase expectations that their kids will go to college. Although the amount saved may be low, it is still helpful for these families. [Holly Hobbs:] That was Melissa Emrey Arras talking about GAO's recent review of children's savings account programs. Thank you for your time, Melissa. [Melissa Emrey Arras:] Thank you, Holly. [Holly Hobbs:] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts and make sure you leave a rating and review to let others know about the work we're doing. For more from the Congressional Watchdog, the US Government Accountability Office, visit us at GAO.gov.