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Birth Records and College Savings, All in One Form

Rhode Island is streamlining its existing and underused program to allow parents to sign their children up for college savings accounts the day they’re born.

Add Rhode Island to the growing list of states and localities trying to increase college attendance and graduation rates by giving every child a savings account. Governor-elect Gina Raimondo, also the outgoing state treasurer, announced last week a new initiative that could result in anyone born in Rhode Island after December 2014 receiving $100 to begin saving for college.

Raimondo is targeting the high cost of college as part of a larger strategy to tackle the state’s stubborn economic woes. Rhode Island’s unemployment rate remains above its pre-recession level, roughly a percentage point higher than the national average. While Raimondo did not campaign on college savings accounts, she said the program fits with her larger message of educating and training her state’s workforce so that they can get jobs.

“I ran on a platform of rebuilding the middle class,” she said. To do that, “we have to make college more affordable.” As a candidate, Raimondo's education plan included new programs to forgive student loans and expand tuition scholarships.

Raimondo’s initiative is a technical tweak on an existing program that virtually no one in the state uses. Four years ago, the state began offering college savings accounts to any child born in Rhode Island. AllianceBernstein, a New York-based investment firm, provided seed money to deposit $100 in each savings account. Only about 400 families have taken advantage of the program because of its impractical design.

Currently, parents have to know the program exists and then take proactive steps to open a college savings account. Parents can self-enroll online or with a financial advisor, but the application is multiple pages, requiring parents to select an investment strategy option. It also requires parents to send a completed form to be sent to the Rhode Island Higher Education Assistance Authority. “We just weren’t getting enough families to take advantage of it,” said Heather Hudson, the director of financial empowerment at the state treasurer’s office.

Starting in January, parents can sign up for a savings account by checking a box on a medical form they already receive at the hospital when their child is born. Raimondo’s team coordinated a simplified enrollment process where the office of vital records in the health department sends the form to directly to the higher education assistance authority. Raimondo called the modification “hard and unsexy work … but I think it's going to really change people's behavior. Small changes like this can have big, powerful impacts.”

Rhode Islanders can use the money in their accounts to attend colleges, universities, vocational or trade schools across the country. They can also apply it to expenses related to higher education, such as textbooks. If they haven't used the money by their 25th birthdays, any money they did not deposit themselves will go back into the state's educational investment fund. 

San Francisco and Cuyahoga County, Ohio, also offer college savings accounts, but they wait until children enter kindergarten. As Governing reported last year, San Francisco uses the accounts as a learning tool for curriculum on financial literacy. To maximize the impact of the initial investment, the city/county not only offers seed money when the account opens, but additional contributions when parents add their own money.

At least three states -- Maine, Nevada and Texas -- have programs that encourage saving for college by offering parents small, outside contributions to open an account or match a deposit. Maine makes an initial investment of $500 per college savings account. Despite offering more money per account than Rhode Island, Maine has also reported a low participation rate (40 percent of eligible children born), in part because its application process is too cumbersome.  

The amounts provided to parents under these saving programs are paltry compared to the real cost of attending a university. With tuition and mandatory fees for in-state students working out to about $417 per academic credit hour, $100 would buy a little more than 14 minutes at the University of Rhode Island. It remains to be seen whether parents will add enough over time that children who otherwise could not afford college will now be able to attend. 

Even if parents don't save a large amount, the program might still entice people to pursue higher education. All of the universal college savings account programs operate on the premise that they encourage both parents and their children to make college attendance a goal. Research out of the Center for Social Development at Washington University in St. Louis suggests college savings accounts increase the likelihood of enrolling and graduating college, even when the amount deposited is as small as one dollar. 

J.B. Wogan is a Governing staff writer.
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