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Education IDAs. Individual Development Accounts. Research Team: Adrianna Kezar, Vikki Frank, Jaime Lester, Hannah Yang Center for Higher Education Policy Analysis Rossier School of Education University of Southern California http://www.usc.edu/dept/chepa/accounts/. Education IDAs.

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education idas

Education IDAs

Individual Development Accounts

Research Team: Adrianna Kezar, Vikki Frank, Jaime Lester, Hannah Yang

Center for Higher Education Policy Analysis

Rossier School of Education

University of Southern California

http://www.usc.edu/dept/chepa/accounts/

slide2

Education IDAs

Context:

Grant aid has failed to keep pace with family and student’s financial need as federal support for grants and subsidized loans have been sharp decline over the past two decades.

This affects low-income families the most!

  • financial obligations that make loans difficult to pay back
  • lack trust in financial institutions and debt instruments, especially among first-generation Americans
  • no or poor credit histories
slide3

Education IDAs and Higher Education

Educational leaders are concerned that low-income individuals have the least opportunity to participate in higher education.

Research on college access among low income groups demonstrates that while cost is one of the greatest barriers, life skills and support are also critical.

slide4

Education IDAs and Higher Education

Opportunity:

Individual Development Accounts (IDAs) represent an important underutilized solution to the problems of access and financial aid for postsecondary education for low-income working students.

slide5

Education IDAs

IDA = matched saving account from students’ earned income

Example:

For every $1 you save, receive $2 in matched funds

Save up to $2,000, earn up to $4,000 in matched funds

Savings and match can help pay for college!

slide6

Education IDAs

DO THE MATH

$2,000 (student savings)

$4,000 (matched funds)

$6,000 (total funds)

$1,000 (student savings)

$4,000 (matched funds)

$5,000 (total funds)

$1,000 (student savings)

$8,000 (matched funds)

$9,000 (total funds)

slide7

Education IDA Plan

  • Work and Save money in a bank account
  • Complete a financial education course
    • Develop financial skills
    • Learn to establish & build credit
  • Create an education plan
  • Spend funds at an educational institution
slide8

Education IDAs specifics

  • IDAs (federal, state, and private) have different policies on the amount students save and the length of the program.
    • In general, students are encouraged to save a total of $600 over 3 years
    • Students save on average $20 a month
    • Disbursements occur each year towards tuition and other qualified expenses
slide9

Education IDA: An Example

Sara starts saving in December 2006

She saves $100 per month.

June

2006

August 2008

December

2008

December

2006

December

2006

6 months

+ 6 months

+ 8 months

+ 4 months

Sara has saved $600 and earned $1,200. She can spend up to $1,800 on school.

Sara spends IDA funds every semester for tuition, fees and books.

Sara begins saving $100 per month

Sara saves another $600, earns $1,200 and spends the $1,800 on semester 2.

Sara saves

$800 and

earns $1,600.

Sara earns her degree! She graduates with $6,000 less in student loans and a valuable savings behavior

slide10

How can Education IDA Funds be used?

  • No
  • Room & Board
  • Student loans
  • Electronics
  • Car/transportation
  • Parking

Yes

Tuition

Fees

Books

Supplies

Equipment

slide11
Who qualifies? Student’s family must have earned income: greater than IDA savings & less than program income limits
slide12

IDAs and FAFSADo IDAs reduce financial aid packages?

Student always comes out ahead!

Savings

AFI IDA is excluded as an asset

No impact on EFC formula

No impact on federal or campus-based aid

Match

No impact on federal & state entitlement grants

No impact on federal & state entitlement grants

Campus-based Funding?

Outside resource

Asset

Gap Funding

Last Dollar In

slide13

Education IDAs

Post Secondary Educational Institutions can use IDAs

  • OUTREACH TOOL to attract low-income students to their university
  • RETENTION TOOL to encourage low-income students to stay in school
  • LEVERAGE PRIVATE SCHOLARSHIP FUNDS for low-income students with student savings and IDA match
  • FINANCIAL EDUCATION TOOL to help low-income students learn to effectively manage their finances, debt and credit
slide14

Education IDAs

Ed IDA Challenges:

  • Universities have not been a stakeholder in IDA policy discussions and are, on the whole, unaware of IDAs
  • Universities are vast multi-faceted bureaucracies with multiple points of entry; it is difficult to identify the appropriate decision makers to introduce IDAs
  • IDAs comprise multiple components that cross over many university departments
slide15

Education IDAs

Developing University Partners…

  • Financial Aid Office
  • Admissions Office
  • Dean’s Office
  • Student Services/TRIO
  • College/University Foundation
  • Cooperative Extension Service
  • Micro-Enterprise departments
slide16

Education IDAs resources

  • Assets for Independence
    • http://www.acf.hhs.gov/assetbuilding/
    • The largest federal funder of IDAs
  • Center for Social Development
    • http://gwbweb.wustl.edu/csd/
    • Directory of IDA programs in your state http://idanetwork.cfed.org