New Legislation Encourages Families to Save for Their Children’s Future
Many laws today actively discourage low-income families from saving for their children’s education. If you have $1,000 or more of college savings in Georgia you will lose your TANF (Temporary Assistance for Needy Families) benefits. With $3,000 or more in college savings in Missouri, you will no longer qualify for energy assistance. And if you have $2,250 in college savings in Utah, you will stop getting nutrition assistance.
Savings penalties, sometimes called asset limits, cut families off from public benefit programs once they hit a threshold savings limit. In other words, they make families choose between saving for higher education or keeping their public benefits.
Savings penalties are only getting worse. The proposed Farm Bill that will shortly be coming to the House floor for a vote eliminates states’ flexibility to increase or remove savings penalties entirely for those receiving benefits from the Supplemental Nutrition Assistance Program (SNAP). Savings penalties require families to spend down their savings, often including for their children’s college educations, before they can receive public benefits such as TANF, SNAP, SSI (Supplemental Security Income) and LIHEAP (Low Income Home Energy Assistance Program).
Luckily, some policymakers are trying to make things better for families and their kids. Today, Representatives Matt Cartwright (D-PA-17) and Charlie Dent (R-PA-15) reintroduced Bill H.R. 5738, the Children's Savings Account (CSA) Opportunity Act. This bipartisan legislation would allow families to save for their children's future without fear of losing the benefits that help them make ends meet today. It allows families to save for their children’s postsecondary education in CSAs (which provide long-term savings or investment accounts with incentives to help children build savings for the future, typically for postsecondary education) and 529s (tax advantaged plans administered by states or educational institutions to help families save for higher education) without losing access to TANF, SSI, LIHEAP or SNAP benefits. For more information on the bill, read our press release.
With college prices soaring, many students feel like higher education is out of reach. Almost half of young people without a four-year degree report that they're not in school because they can't afford college. And those who make it to college are still hurting. Even after receiving financial aid, 97% of college students from low-income families still have unmet financial needs.
The bill supports a rapidly growing movement of CSAs spreading throughout the country to help solve this problem. More than 382,000 children have CSAs through the 54 CSA programs operating in 32 states and the District of Columbia. Four states have statewide programs: Connecticut, Maine, Rhode Island and Nevada, and Pennsylvania is currently considering bipartisan legislation for a statewide CSA program as well. On the federal level, the USAccounts Act, which would open a CSA for every child in the United States, was reintroduced in February.
One great example of a successful CSA program is St. Louis College Kids, which is funded through parking fees collected by the City of St. Louis Treasurer's Office. The program automatically creates a CSA seeded with $50 for every kindergartener entering public or charter schools in the City of St. Louis. It matches contributions up to $100 in the first year and includes bonuses for good attendance and extra incentives for parents and guardians who participate in financial education. Currently, about 10,000 children are participating in the program.
CSA programs also have the potential to shrink the racial wealth divide. Data reveal a staggering wealth divide between White households and households of color. For instance, in the past 33 years, the median wealth for White families increased by more than $35,000, while the median wealth for Latino families grew by just $2,200. Over the same period, the median wealth of Black families decreased by $3,600.
Recent research by the Annie E. Casey Foundation found that if universal CSAs (a CSA account for every child in America) had been established in 1979—with accounts seeded on a sliding scale starting at $7,500 for low-wealth families and declining downwards to $1,250 for high-wealth families—the wealth divide between young adults in Black households and White households in 2013 would have decreased by 23%. Meanwhile, the divide between young adults in White and Latino households would have decreased by 28%. Other proposals giving every young American a head start when they are born are also in the works.
A parent who saves for her child’s education should not fear losing TANF, SNAP, LIHEAP, SSI or benefits from any other public program. This commonsense legislation rectifies this problem and encourages families to save for their children’s futures. Contact your Representative and ask them to co-sponsor this bill.