CREDIT: Wall Street Journal
The college savings gap between low-income families and the rest of the country is getting wider, according to a new report from Sallie Mae. Barely half of families with children are saving for college at all.
The average college savings balance rose last year to $15,346, a 30 percent jump. But that average figure is skewed by vast disparities between what wealthy families and poor families are able to save. Low-income parents actually saw their college savings shrink by 26 percent to an average of $3,762.
While 62 percent of families with children younger than 18 were actively saving for college in the 2009 edition of the same college financing survey, the report says that just 51 percent of such households are doing so now. Again, that figure obscures stark class differences: About three in four families with income over $100,000 per year are setting aside money for college, but just 34 percent of families earning less than $35,000 annually are able to save for their children’s education.
The ability to save even just a little bit for college is a key indicator of a child’s educational prospects. Seven out of 10 high school students who have access to some college savings will enroll in college, compared to 45 percent of those without any savings. Students with savings are nearly five times more likely to graduate college than those without.
The figures on college savings suggest the current student debt crisis is unlikely to fade. Total outstanding student debt today is well above a trillion dollars. Default rates are near record highs, with one out of every eight borrowers in default. Federal programs that help young people avoid default are enrolling too few borrowers to provide an effective curb on the overall student debt crisis. Congress has a variety of options for addressing the debt overhang, but one of the most effective would be to change bankruptcy laws.
The debt overhang hurts the broader economy because it keeps money flowing to lenders rather than into purchases of goods and services. For example, the money student borrowers spend paying back their loans every year could buy 155,000 new houses.
At the same time, college prices are rising faster for poor families than for rich ones that use their superior resources to game the financial aid and scholarship systems.
The federal financial aid system is a patchwork that mostly subsidizes the cost of expensive private colleges that serve just a sliver of the total higher education student body. For the same amount of money that it currently spends on grants, tax breaks, and work-study jobs across the whole higher education system now, the government could afford to cover the entire tuition costs of every public college student in the nation. Recent data even suggests that making public college free for everyone would actually be cheaper than the current system.