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Increasing access for low-income students and making financial education a priority for higher education.

Article Excerpt
YOU CANNOT pick up a newspaper today without reading about the severe financial and economic conditions facing our society. While the reasons for the current crisis are extremely complex, it is clear that our financially illiterate culture is one major contributing factor. What responsibility do we as educators have for this lack of foundational knowledge that threatens to erode the health and well-being of our society?

In addition, we know that students from low-income families have reduced opportunities to participate in higher education. And according to a recent study (Wyner, Bridgeland, and Diiulio 2007), even high-achieving lower-income students are less likely to graduate from college than their higher-income peers (59 percent versus 77 percent). The cost of attending postsecondary institutions continues to rise; in many states, merit-based aid programs have replaced need-based aid; and loans are on the rise. On average, low-income students face an $8,000 gap between the total amount of financial aid they receive and the annual cost of tuition.

While widespread financial illiteracy and reduced opportunities for low-income students to participate in higher education may seem unrelated, both challenges can be addressed through Individual Development Accounts (IDAs), an existing but widely underutilized tool. Indeed, IDAs have the potential both to increase access and retention of low-income students and to fulfill higher education's commitment to offer financial education.

What are IDAs?

An IDA is a financial tool designed to encourage low-income families to save toward and acquire an appreciating asset--for example, buying a first home, paying for college, or starting a small business. IDAs typically include a matched savings account, financial literacy education, training to acquire the asset, and critical case management. That is, IDAs offer not only matched funds, but also the opportunity to foster critical new life skills and behaviors with respect to financial management, credit, and debt.

Research on IDAs has shown that poor families can save and build assets if provided institutional supports parallel to the incentives available to middle- and upper-class families--for example, 401Ks that provide employer-match and tax incentives--and if provided with the right education, support, and planning tools. IDAs took on national recognition when Congress funded the American Dream Demonstration in 1993 and then the Assets for Independence Act (AFI) of 1998, which provided federal funding to support IDAs. The federal government provides funding for the matched savings accounts through the AFI legislation, and some individual states also offer such funding. In addition, private organizations can establish and fund IDAs. Hundreds of organizations now offer IDAs across the country. (1)

So how do IDAs work for students? A low-income student simply opens an account with a participating community organization and starts saving...