Saving for post-secondary education in individual development accounts

Journal of Sociology and Social Welfare, Sept, 2005 by Min Zhan, Mark Schreiner

The "quick labor-force attachment model" assumes that those who take low-paying or part-time jobs will eventually move up to higher-paying and full-time jobs (Pavetti & Acs, 2001). While welfare reform has decreased welfare caseloads, research has consistently found that those who leave TANF often have unstable jobs and face precarious financial circumstances (Anderson & Gryzlak, 2002; Johnson & Corcoran, 2003; Loprest, 2001). At the same time, studies have found that welfare recipients who had college degrees earned more than those without college degrees (Karier, 1998; Mathur, 2004). This research has sparked an increasing interest in human-capital development strategies to enhance long-term self-sufficiency among welfare recipients, and more broadly, among the working poor (Strawn, 2004). Individual Development Accounts are one approach in this respect.

Asset-based Theory, IDAs, and Post-Secondary Education

Asset-based welfare theory highlights the importance of assets compared to that of income (Sherraden, 1991). According to this perspective, assets bring security, and maybe more importantly, assets may possibly stimulate and facilitate the development of human capital. Consistent with the notion of social investment in developmentalism (Midgley, 2003; Sen, 1999), asset-based welfare theory emphasizes opportunities to build assets that can strengthen human capacities.

Based on this theory, IDAs were designed to help low-income people build assets for long-term development, including postsecondary education (Sherraden, 1988; 1991). Deposits are made in IDAs by low-income participants. Others could also make deposits, perhaps related to milestones such as completing a year of schooling or graduating from high school. Withdrawals for postsecondary education (or other specified asset purchases) would be matched, with higher match rates for poorer participants. In contrast to the current emphasis on loans to pay for college, IDAs aim to promote a system of savings and assets.

At the state level, asset building and IDAs are already a policy theme. For example, PRWORA allows states to set up IDA programs with TANF funds and to exclude IDAs balances as countable assets for the purpose of qualifying for benefits. As of 2002, 22 states include post-secondary education as a matchable use of their IDAs (Edwards & Gunn, 2002). Some IDA or similar programs outside the United States have also focused on postsecondary education (Boshara & Sherraden, 2004). For example, Canada has embarked on an asset-building demonstration (called "Learn$ave") that provides matches for post-secondary education and microenterprise. In Western Europe, national Individual Learning Accounts (ILAs) resemble IDAs for post-secondary education. Participants in the Saving Gateway, a pilot asset-building program in the United Kingdom, indicated that education and training were the only restrictions on matched withdrawals that they would find acceptable (Kempson, McKay, & Collard, 2003). In sum, matched savings for post-secondary education as a new policy theme is being tested both in the United States and elsewhere.