LOS ANGELES (CN) — This year, the city of Los Angeles will begin an experiment. It will give every first grader in the LA Unified School District, regardless of their family's income or immigration status, $50. The money will be dropped into a Citibank savings account, where it will earn a very small amount of interest and will not be available for withdrawal until the child graduates from high school.
This child savings account program will be the biggest in the nation, involving more than 44,000 students. Leaders hope the initiative will encourage more students to think about attending college.
"Too many children simply cannot afford a higher education," LA City Council President Nury Martinez said at a press conference Monday at Knox Elementary School in South LA. "While $50 isn’t going to gain enough interest in 10 years to pay for college, it’s a start."
The cost of the program — nearly $3 million, about $650,000 of which will go to administrative costs — will be paid for by the city, LA county and the school district, which has suffered from declining enrollment over the last two decades and has at times met budget crunches and even fears of future insolvency. At the same time, the school district does more than just educate students. It already hands out free breakfasts and lunches to students who qualify as living in poverty — and more than 80% of them do.
A little more than a quarter of LAUSD graduates go on to attend a 4-year college. A bit more than a third attend a 2-year college. About 35% of graduates do neither.
"LA Unified is a district that’s putting its money where its mouth is," said LA Unified board member Nick Melvoin. The savings accounts, he said, will "instill a college-going mindset into our students from the time they start school."
The program is designed not just to give students money, but to encourage their parents to add their own money and nudge parents toward saving for college. Once the child turns 18, he or she will only be able to spend the city's $50 seed money on some form of higher education, be it a college or trade school. The money parents put in themselves can be used for anything.
For now, the program is only for kids who are currently enrolled in the first grade, but leaders hope to make the initiative permanent.
A number of studies have shown the benefit of child savings accounts. One found that a lower-to-middle income student "with school savings of $1 to $499 before college age is more than three times more likely to enroll in college than a [low-to-mid income] child with no savings account and more than four and half times more likely to graduate." Another study, cited in a report by the U.S. Government Accountability office, found that child savings accounts succeed in making families save more: "Families who were enrolled for seven years saved over four times more of their own money, on average, than families who were not enrolled — $261 compared to $59."
State-sponsored school savings accounts, or 529 plans — so named for a section in the tax code that offers such plans tax breaks — are a public policy innovation that's catching on. Last year, a nonprofit in Oakland gave just over 1,000 families $500 each, invested in a fund. And California has set up Scholar Share 529, which gives up to $200 in matching contributions to low-to-moderate income families who sign up with the program, plus a $25 bonus for signing up.
But LA is the largest jurisdiction in the country to set up a universal savings program. Called Opportunity LA, the program was first launched last year, as a pilot program for the 12,000 families most in need. On Tuesday, the LA City Council will vote to expand the program to cover all 44,000 first graders in the district.