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Education IDAs

Education IDAs

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Education IDAs

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  1. 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/

  2. 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

  3. 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.

  4. 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.

  5. 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!

  6. 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)

  7. 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

  8. 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

  9. 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

  10. How can Education IDA Funds be used? • No • Room & Board • Student loans • Electronics • Car/transportation • Parking Yes Tuition Fees Books Supplies Equipment

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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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