Purpose: 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. However, few families actually utilize these plans to save for college, and little is known about why. The purpose of this research is to test several possible ways to influence participation in college savings plans and subsequent savings behavior.

Project Activities: This study will explore issues related to the use of college savings plans and measure the potential benefits focusing on three interventions: (1) increasing awareness of college savings options, (2) simplifying the enrollment process, and (3) providing additional incentives to encourage savings behavior. Using a randomized experiment design, the project will help families open 529 college savings accounts in order to test the viability of encouraging college savings among middle- and low-income families.

Products: This project will produce at least one rigorous research paper that will be submitted to a refereed journal. It will focus on how different types of incentives impact the likelihood of opening a savings account. In subsequent work, the researchers will also examine how college savings behavior affects the likelihood of college entry and the type of college chosen. Additionally, they expect to produce articles or policy briefs for less technical audiences that focus on whether complexity and low-visibility are major deterrents in the use of 529 Savings Plans. Findings will be presented at national conferences and disseminated through working papers series similar to those of the National Bureau of Economic Research.

Structured Abstract

Setting: The intervention will take place at school districts throughout Ohio from 2009 to 2012. The final analysis will be done during 2012 and 2013.

Population: The proposed research will focus on parents of children about to enter the ninth grade. The project has selected school districts to have a wide range of income groups as well as geographic representation (i.e. rural, suburban, inner-city).

Intervention: The study will attempt to increase awareness of, enrollments in, and contributions to 529 College Savings Plans. Using a randomized design, the project will simplify and help complete the paperwork for individuals who are selected into one of the treatment groups. In addition, for two of the treatment groups, the project will test the effects of offering incentives to individuals in an attempt to test mechanisms that may increase enrollment in and contributions to 529 plans. One of the incentive programs focuses on increasing the initial account balance while the other aims to increase participation by enrolling clients in an automatic monthly contribution program.

Research Design and Methods: The research has an experimental design. Families who agree to participate in the research will be randomly assigned either to one of the three treatment groups described above or the control group, which will receive a short pamphlet with general information on the importance of college enrollment. Each treatment group will receive a different intervention that is designed to test the impact of simplification and incentives on the propensity to open and to contribute to a 529 College Savings Plan.

Key Measures: In collaboration with the Ohio Tuition Trust Authority and the Ohio Board of Regents, the project will provide evidence on the effect of the proposed intervention on the likelihood of opening a savings account and the amount of additional savings that families contribute immediately and in the long run. In the future, it will provide evidence on the effects of these savings accounts on college attendance, access to financial aid, college choice, and college persistence. The use of administrative data allows inexpensive tracking of all of the study participants over time as well as a comparison of them to families in districts that do not have the intervention. Finally, the project will also randomly survey a subsample of the participants to collect information on other ways in which they might have begun saving for college (i.e., opened a 529 account in another state or used another instrument). These outcomes will be investigated for the entire sample as well as for subgroups (by income, race, and prior academic performance).

Analytic Strategy: Given the randomization involved, simple comparisons of the control and treatment groups should identify the treatment effects. In addition, multivariate regression analysis will be used to augment the analysis.