Panel Paper: Simplification, Assistance, and Incentives: A Randomized Experiment to Increase College Savings

Saturday, November 4, 2017
Wrigley (Hyatt Regency Chicago)

*Names in bold indicate Presenter

Bridget Long, Harvard University and Eric Bettinger, Stanford University

Supporting access to higher education is a major goal of both federal and state governments. However, financial aid often covers only a small fraction of tuition and other college expenses and is not sufficient for helping most families afford college. Unfortunately, parents often fail to make up the difference by adequately saving for their children's college educations. As a result, unmet financial need contributes to the fact that college attendance continues to be stratified by family income. Even after accounting for differences in academic preparation and achievement, substantial gaps in college access and success exist by income.

In acknowledgement of the growing importance of family savings in the face of rapidly increasing college costs, a major focus of recent federal and state financial aid policies has been to encourage families to save for themselves. Among these polices are the 529 Savings Plans, Prepaid Tuition Plans, and the Coverdell Education Savings Accounts. However, while politically popular, few families actually take-up these plans to save for college, especially among middle- and lower-income families. While underutilized, college savings plans have the potential to provide substantial benefits to families. However, little is known about the best way to design these types of policies or whether they will actually be beneficial to families in the long run. Our study examines the types of supports that are most helpful to families as they try to prepare financially for their children’s college educations.

Our paper evaluates several interventions designed to help families prepare for the expense of their children’s college educations. To examine the impact of information and incentives on college savings behavior, we implemented a series of free school and community workshops—The Early College Planning Initiative (ECPI)—focused on the parents of 7th to 10th graders in the Boston Public Schools. Using a randomized control treatment (RCT) design, we compare the effects of three interventions: (1) increasing awareness of college costs and college savings options, (2) simplifying the 529 savings plan enrollment process, and (3) providing simplified enrollment and a monetary incentive to encourage savings behavior.

Our results suggest that before our workshops, parents knew little about financial aid or savings options. While families who received information and help completing 529 applications rarely opened an account, those offered the $50 opening deposit had a strong, positive effect on take-up. After opening an account, families were much more likely to engage in additional savings and even sign up for automatic monthly contributions even though we provided no additional support or information. This suggests getting started with an account reduces the hassle and complexity of continuing to save. We continue to track family behavior several years after the initial workshops and also used a follow-up survey to collect information on families' activities and plans two-to-three years later.