education savings accounts

Research indicates that the richest 20% of American families spent approximately $9,400 on enrichment for their children, such as tutoring, compared to $1,400 spent by the poorest 20%, as of 2006.

The COVID-19 pandemic has cast a spotlight on one of the significant barriers to equal opportunity in American education. Children from lower socioeconomic backgrounds are more dependent on in-school learning and have fewer resources to learn when schools are closed.

As lawmakers and school leaders work to prepare for the 2020-21 school year, including planning ahead for potential school closures and providing distance learning options, policymakers should consider new reforms to address longstanding inequalities in outside-of-school learning opportunities, which contribute to the achievement gap.

Background on the summer learning ‘slide’ and potential pandemic learning ‘dive’

In the past, researchers have found that children return to school after summer vacation having lost some of the learning gains made during the prior school year, and that children from poorer families regress more than kids from wealthy families. Over time, differences in outside-of-school learning opportunities and cumulative “summer learning slides” contribute to the academic achievement gap.

Many factors affect children’s learning opportunities when school is out of session. One difference is access to financial resources. According to Greg J. Duncan and Richard J. Murnane, the richest 20% of American families spent approximately $9,400 on enrichment for their children compared to $1,400 spent by the poorest 20%, as of 2006.

Reducing inequality in outside-of-school learning was an important goal before the pandemic. Now, it’s an urgent national challenge. More than 50 million children missed months of school in 2020, and the outlook for the upcoming school year remains uncertain.

The effects of pandemic-related school closures will be felt most acutely by disadvantaged children. Brown University researchers predict that children will return to school this fall having lost at least one-third of a typical year’s worth of learning in reading and a half a year’s knowledge of math. Importantly, they predict that these losses “would not be universal, with the top third of students potentially making gains in reading.”

In other words, the pandemic is increasing the achievement gap.

Facing the likelihood of periodic school closures and reduced schooling hours this fall, the United States risks growing and cementing an academic achievement gap for a generation of schoolchildren. 

Investing in and expanding children’s savings accounts to promote equal opportunity

One option to address inequality in outside-of-school learning would be to invest in disadvantaged children’s education savings accounts and expand their allowable uses to include tutoring and enrichment expenses during the pandemic.

Several states, cities, and charitable organizations have created programs to invest in children’s savings accounts as a mechanism to reduce wealth inequality and promote saving for college. In their 2018 book “Making Education Work for the Poor,” William Elliott and Melinda Lewis describe how children’s savings account programs can promote equal opportunity. Elliot and Lewis reported that: “At the end of 2016, there were nearly 313,000 children with a CSA in 42 programs operating in 29 states, a 39% increase in enrollment from the previous year.”

Encouraging empirical evidence suggests that children’s savings account programs have positive effects for children and parents even during their early years. For example, Washington University conducted a randomized control trial in Oklahoma in 2007, providing $1,000 investments into the 529 savings accounts of approximately 1,350 children randomly selected. A control group of approximately 1,350 students did not receive investments. The “treatment group” received other benefits including savings matches and educational materials about savings for college.

The Washington University researchers studying the program over time reported that the treatment group benefited in multiple ways. In terms of financial benefits, “treatment children are 30x more likely than control children to have 529 college savings,” and the total amount of savings is 6x more than the control group.

The researchers also found that children receiving the investments demonstrated emotional-social benefits compared to the control group, particularly among economically disadvantaged children. “At about age 4, disadvantaged treatment children score better than disadvantaged control children on a measure of social-emotional development,” the researchers found, adding: “The effects of the CDA in these groups are similar in size to at least one estimate of the effect of the Head Start program on early social-emotional development.”

A short-term option for pandemic school closures and long-term strategy to promote equal opportunity

Most children’s savings account programs use state-managed 529 plans as the savings vehicles. 529s allow tax-free savings for college, K-12 tuition and job training expenses. Federal lawmakers have proposed expanding the allowable uses of these accounts to include tutoring and other enrichment costs. Combining reforms to invest in disadvantaged children’s 529 accounts while expanding their allowable uses has the potential to narrow the outside-of-school learning gap.

Another option would be to establish short-term ESAs to pay for tutoring and other outside-of-school learning costs. For example, Florida’s Reading Scholarship Account program provides children in grades 3 through 5 who are academically behind in reading with $500 in an account that can be spent on instructional materials, tutoring, or summer or afterschool programs focused on reading and literacy skills.

Florida’s program could be a model for how states and school districts encourage tutoring and remedial instruction for children affected by pandemic-related school closures. But the short window of time to establish, oversee, and manage new savings account programs for tutoring during the pandemic could be a challenge.

529 accounts are already overseen by state governments, which can ensure that funds are spent on allowed uses and not withdrawn for other purposes, particularly if government funding is being invested into these accounts. During the COVID-19 pandemic, 529 accounts would provide a practical vehicle for directing education funding to lower-income families to pay for tutoring and other services to make up for time lost while schools are closed without requiring states to establish and manage new ESA programs.

Beyond the pandemic, investing in disadvantaged children’s savings accounts has the potential to reduce wealth and educational inequality and promote equal opportunity.