The cost of college poses a major challenge to families. The average net price of attending a public four-year institution, including living expenses, is nearly $20,000 a year. There are more than 40 million students who took out loans to pay for college and they owe $1.7 trillion. For this episode, we sat down we three people who have given a lot of thought to this topic: Heather Carter, a former Arizona legislator who now serves as executive director of Greater Phoenix Leadership; Kate Hoffman, the CEO and founder of Earn to Learn; and Andrew Smalley, an education policy expert with NCSL. Smalley discussed the strategies for saving for college and avoiding burdensome student loan debt, particularly 529 plans that are a primary vehicle for families to save. Carter and Hoffman talked about how Earn to Learn, an Arizona-based program aimed at helping students afford and complete college, has helped thousands of students in their state and efforts to turn it into a nationwide program.
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Ed: Hello and welcome to “Our American States,” a podcast from the National Conference of State Legislatures. This podcast is all about legislatures, the people in them, the policies, process, and politics that shape them. I’m your host, Ed Smith.
HC: College affordability isn’t necessarily a new concern, but it’s an ever increasing one. It’s really on the forefront of minds of parents and students across the country.
Ed: That was Heather Carter, a former Arizona legislator, who now serves as executive director of the Greater Phoenix Leadership, an organization of leading CEO’s. She is one of my guests on this podcast along with Andrew Smalley, an education policy expert at NCSL, and Kate Hoffman, the CEO and founder of Earn to Learn, an Arizona-based program aimed at helping students afford and complete college.
College affordability poses a major challenge to families. The average net price of attending a public four-year institution including living expenses is nearly $20,000 a year. Smalley discusses the strategies for saving for college and avoiding burdensome student loan debt, particularly 529 plans that are a primary vehicle for families to save. Cater and Hoffman discussed how the Earn to Learn program has helped thousands of students in their state in efforts to turn it into a nationwide program. Here is our discussion, starting with Andrew Smalley from NCSL.
Andrew thanks for coming on the podcast.
AS: Great. Thanks for having me Ed.
Ed: Well, we are talking today about the cost of college and efforts to make it more affordable for families. And the rising cost of college is in the media all the time. In fact, I read a story today about the University of Colorado looking to increase its tuition. Can you talk about how drastic these price increases are?
AS: It’s a well-covered story that over the past several decades college costs have increased substantially. At most basic level, college tuition has grown about four to five times the rate of inflation over the past several decades. That of course is a substantial increase. It has an impact on the ability of students to attend and complete college. It also falls into question the value of a degree and raises lots of issues around large sums of student loan debt that might be accrued while obtaining that degree. But on the cost side, it is important to note there are some caveats with that sort of topline number. The first is that overall growth in tuition costs is most pronounced at private colleges and universities. These are schools where tuition and fees average about $40,000 a year. The elite private colleges are closer to $60,000 a year. But public institutions are substantially more affordable. The most expensive four-year universities in most states are about $20,000 a year for in-state students. It’s also important to note one of the reasons the costs have gone up so much is because most colleges and universities are using a high-tuition, high-aid model where they are raising the sticker price of tuition but also raising the amount of financial aid that they are offering to certain students.
The effect of this is that for low- and middle-income students, the net cost of attendance at public colleges and universities has been relatively flat over the past decade and a half or so. So that average net cost of attendance which includes not just tuition, but housing, meals, books, it’s roughly $20,000 a year at a four-year public institution and about $15,000 a year at a two-year institution. Of course $20,000 and $15,000 are not insignificant amounts of money especially over the course of two to four years for a student to pay or earn their degree or credential.
Ed: So given that, what kind of options do parents and families have to save for college?
AS: The main tool for savings is 529 accounts which are also known as qualified tuition plans or college savings plans. These are state run tax advantaged accounts that let savers pay for a beneficiaries qualified higher education expenses including tuition, room and board, books, supplies, things like that. 529 plan is going to be used at pretty much any higher education institution that is recognized by the Department of Education, so you are not tied to one school or one state with the savings or idea of 529. You can also use them at about 400 schools overseas and for some registered apprenticeship programs as well. There is also a relatively recent change at the federal level that allows them to be used to pay for private K-12 education although the tax consequences at the state level vary on that piece. But in terms of the college side, the use of 529’s has grown dramatically in recent years. About 16 million Americans have a 529 account and there’s about 480 billion dollars invested in them. That’s about a 200% increase in the amount invested in these accounts over the past decade. And there is a good deal of research that tells us 529’s are effective in boosting the number of students who are pursuing or attaining a post-secondary education.
There was a study from Washington University that found students with a 529 account, even with a balance as low as $500, were three times more likely to enroll in college and four and a half times as likely to graduate than students without a 529 account. So, there is a lot of evidence supporting these as an effective tool to save for college.
Ed: Yeah, that certainly sounds like a pretty persuasive case for encouraging this. We are talking, of course, to our usual audience state legislators, state legislative staff and others interested in state policy, and I wonder if you can talk about that angle of it? What states are doing either developing or encouraging the use of these 529 accounts.
AS: States have a variety of incentives particularly tax incentives to complement the federal tax advantages of 529’s. So at least 37 states and Washington, DC offer a tax credit or a deduction for contributions to a 529 and three states--New Mexico, South Carolina and West Virginia--you can actually get a deduction up to the full contribution amount that you make to a 529. All these state tax benefits are not insignificant. Workings Institute did an analysis a few years ago looking at the incentives in 24 states and found that they were spending about $265 million dollars a year on these tax incentives for 529 so that is definitely a strong incentive across the states.
We’ve also seen in recent years in addition to the tax advantages, states exploring creating initial deposit and seed programs for these 529 accounts. So, Rhode Island provides a $100 deposit for each baby who is born or adopted in the state if their parent opens a 529 account within their first year of birth. About a dozen other states have followed that model in recent years. Colorado, Nebraska, Illinois have passed legislation on this just in the past few sessions. Most of these programs provide $50 to $100 in initial deposits when the account is opened within the first year of birth. The rationale really is to try to encourage those accounts being opened and funded in the first year of birth and giving the account time for compound interest to build and accrue as the child grows up.
And then the last sort of area is building on that, some states provide matches to contributions even over the course of a child’s life. Colorado offers a matching grant of up to $500 for year. There are certain families that meet income requirements. Tennessee provides a match of up to $1,500 over the lifetime of a child for contributions. So there’s a lot of state investment to encourage the use of these accounts particularly around the tax savings component as well as direct funding from states.
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Ed: Well Andrew thanks for filling us in on this background. It’s very helpful. You take care.
AS: Thanks Ed. You too.
Ed: And I’ll be right back after a short break with Heather Carter and Kate Hoffman to discuss the Earn to Learn program.
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Ed: Kate, Heather, welcome to the podcast.
HC: My pleasure.
KH: Thank you so much. I’m really excited to be here.
Ed: We are talking on this podcast today about programs that help families with the cost of college. And Kate let me start with you. Can you talk about how Earn to Learn came to be and give us an overview of how your model aims to help students in college?
KH: My background is as a social entrepreneur and financial services professional. But first and foremost, I’m a mother of two. I had become increasingly aware that kids like mine wouldn’t have the same opportunity I had to attend college and earn a degree. So, a little over a decade ago, I began Earn to Learn with a simple proposition to make college possible for low- and moderate-income students. As we all have noted over the past decade, the purchasing power of Pell Grants has significantly declined. Students have growing unmet financial needs like housing, books, fees. Costs that are above and beyond just the cost of tuition. Earn to Learn isn’t just another scholarship program. It’s really it really works differently. This is a matched savings program and what that means is every dollar that a participating student saves, they are actually qualifying for an $8 or an 8-to-1 match. And those funds, the combination of the student savings coupled with that match, can go towards not only addressing tuition, but also go towards addressing that unmet need that we just referenced in the form of housing, books, meal plans. And what we are really finding is that’s where a lot of the borrowing is happening.
In any given year a student can save up to $500 to qualify for a maximum of $4,000 in additional financial assistance to help support the overall cost of attendance. And I think it’s really important to stress that this isn’t a giveaway. In addition to having some of their own financial skin in the game, participating students also must complete financial capability training, financial wellness training to learn really healthy money management habits. And I think those are skills that the participants of Earn to Learn can take with them long after the graduate and into their adulthood. We really are viewing Earn to Learn as being complimentary to existing programs like Pell and other scholarships and grant aid and really fulfilling the mission to help more students achieve those educational goals and training that they need to be successful.
Ed: Heather let me turn to you. You are a former Arizona legislator. I wonder if you can talk about the concerns around affordability of post-secondary education and how you think Earn to Learn could help Arizonians deal with some of those challenges.
HC: Well, you know college affordability isn’t necessarily a new concern, but it’s an ever increasing one and it’s really on the forefront of minds of parents and students across the country. You know over 42 million borrowers owe federal student loans. And that combined tuition debt totals over $1.7 trillion. Now if you average that out, that’s nearly $38,000 for every undergraduate borrower. But not every borrower takes out loans, so for some it’s really expensive to go to college and then take out these loans becomes an increasing financial burden that they will face once they graduate.
And when students graduate with a large financial loan debt, many times they will have to delay life milestones like buying a house or starting a business. And then when you are looking at starting college, just the cost associated with going to college and taking yourself perhaps out of the workforce or trying to do part time work, it creates a burden for many people where they just don’t even start college in the first place.
So, this program with Earn to Learn is really unique because it is one of the only programs out there that helps fill that gap with traditional financial aid and it also gives participating students the academic coaching. I really want to dive into that piece of this because there are supports built in to the Earn to Learn program that helps students navigate this sort of first-time territory. It also gives them access to employer apprenticeships and other supports that help them succeed. You know the best of all the program works because most Earn to Learn students graduate with little or no tuition debt. So it’s a really holistic approach to earning your college degree.
Ed: Kate, I was struck by the number of first-time college students in this program and the number of students who pursued STEM programs as part of this program. Was that part of the design or did that just happen?
KH: We knew that reducing financial burdens would create opportunities for underserved students including those who were the first in their family to attend college. I’m really proud of the fact that nearly two-thirds of all Earn to Learn participants to date are first generation college students. This is an amazing legacy that can positively impact the trajectory of a family for generations to come. You also asked about STEM. And we know that some of the fastest growing areas of our economy involves STEM related fields. And it’s noteworthy that one in every two Earn to Learn participants is pursuing a STEM related field. And I can share with you that employers are really, really excited to see that in the participants of Earn to Learn. These students will graduate so well positioned to find a job and be successful in their chosen field after they graduate.
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Ed: Kate, let me stick with you a minute and talk about some of the early outcomes, kind of the stats that you are seeing coming out of the program. What kind of percentage--I think it was the overwhelming majority--but what are we really seeing in terms of results? You are in almost a decade now with this program.
KH: Sure. I’m really excited to share that the results of this program that has now been up and running for over a decade in Arizona. The results have been amazing. Nearly 80 to 85% of the Earn to Learn students graduate within six year which compares very favorably to the national rate among similar students. And nearly 90% of Earn to Learn participants are meeting their monthly savings goal to earn that 8 to 1 match that I mentioned earlier. And we are so proud that Earn to Learn is making college possible for underserved students and communities. And nearly 85% of our participants are students of color. Best of all, most Earn to Learn participants graduate with little to no student loan debt.
Ed: Heather, let me ask you about the business community in connection with the work that you do now, and I wonder what do you hear from employers. What are they looking for from students both coming out of a higher education, coming out of any kind of post-secondary program.
HC: Well, I think it’s fair to say that employers are absolutely starved for the trained and ready workforce. We hear this every day and that’s one of the reasons why so many large employers like Raytheon or Roche and even others are partnering with Earn to Learn because they see the value in improving college affordability and getting access to these graduates is a step in the right direction for full employment. But it is even more than just providing financial support. Earn to Learn mentors these students in things that they don’t necessarily receive in their day-to-day classes at the university or the community colleges. So, they help them create professional business documents like their resume or sharpen their interview skills, dive into financial literacy skills. These are all things that are an added benefit to participating with Earn to Learn. And remember I think another important piece to it is that Earn to Learn isn’t only about university and community college education, participants can also use these dollars to attend a trade school or career in technical education program. We see an advancement of these certificate programs becoming more and more important in the workforce. And so, these Earn to Learn dollars are really flexible.
Ultimately, Earn to Learn’s focus is to help students achieve post-secondary education they need, but we want to make sure that they have multiple paths open to them to be able to enter into the workforce and then ultimately build that financial success for them ongoing.
Ed: It’s important of course for young people to get an education and be able to have these jobs. But it is also important for the community and certainly legislators are concerned about full employment, about people paying taxes and contributing to the community and that kind of thing. And Heather I wonder if you could comment a little bit about how this sort of approach can help regions prosper in Arizona and certainly for our listeners in other states.
HC: Well, I don’t think anybody will debate the strong link between education and the economy. But it’s not just enough to have a great university and community college system. Students have to be able to access that system and they need to be able to do so in every neighborhood in every corner of the state so that they can attend. Now through you know the thousands of Arizona students that Earn to Learn has helped in the past decade, Earn to Learn has demonstrated that this model works and is breaking that cycle of college debt that follows too many students across the country. We believe that this model will be effective nationally and, in the weeks, ahead, a bipartisan coalition of house and senate lawmakers will be bringing this legislation forward to work at the federal level. And we are super excited to share the success that we’ve had in Arizona across the country.
Ed: Kate from your work with students in this program, what are some of the biggest takeaways lawmakers and staff in other states should know about today’s college students?
KH: So, I would say that every generation of students is different than the one that proceeded it, but they are similar in important ways. Today’s students want to be successful, and they know that some kind of post-secondary credential or training beyond high school is critical to their future. The key is they want to earn this post-secondary credential without being saddled with decades of student loan debt and they are willing to work hard, save and invest in their own success. When we launched Earn to Learn, the biggest objection that we got was that this program was too good to be true. And as more and more students enrolled and realized that this was a very real opportunity, we had siblings enrolling and parents enrolling, and it was really exciting to see the grassroots movement that happened with the Earn to Learn program. I could not be prouder of the Earn to Learn participants who proved their resolve and resilience every single day.
Ed: As we get ready to wrap up Kate, I wonder what’s next for Earn to Learn. You are going into your second decade and I wonder how this program will evolve and continue to serve students.
KH: Well, I’m really excited to share with you that we have been approached by over 25 states interested in replicating the model. That level of interest coming nationally has led to what I will refer to as a federal push to take the Earn to Learn model national. And we have drafted the Earn to Learn Act at the federal level which has bipartisan sponsors in the house and the senate and will create an estimated $250,000.00 additional scholarship opportunities to support underserved students nationwide. This is not only a matter of expanding educational opportunity. It is an economic imperative in a country where too many employers cannot grow without the workforce that they need. So, we are really excited about the national prospects for this concept. Potentially as a new way of financing higher ed that could be available to every family across the country who income qualifies as a supplement or a compliment to Pell Grant Aid.
Ed: And Heather, I wonder if there is any parting thoughts you’d like to share with legislators and staff around the country if they want to get involved in this issue and particularly if this federal legislation comes through.
HC: Absolutely. You know we cannot stand by as college education becomes out of reach for middle- and low-income students. And we really can’t accept the status quo in which attending college or additional training after high school means taking on tens of thousands of dollars in student debt. You know I believe strongly that Earn to Learn is part of the solution when it comes to helping more students. You know not only pursue their choice of education after high school, but also graduate with little or no debt. So, adoption of this Earn to Learn Act at the national level would be a gamechanger for hundreds if not thousands of deserving students and I’m excited to see this advance across the country.
Ed: Well, Heather and Kate, thank you both for walking us through this. I know this is a program that a lot of people are going to be interested in and we will share in the show notes some links to more information about it. Thanks to both of you.
HC: Thank you so much.
KH: Okay. Thank you so much.
Ed: I’ve been talking about approaches to college affordability with Andrew Smalley from NCSL, Kate Hoffman, the CEO and founder of Earn to Learn and Heather Carter, a former Arizona legislator who is now executive director of the Greater Phoenix Leadership. We also want to thank the Stand Together Trust for its support of this episode. Thanks for listening.
You can check out all the podcasts from the National Conference of State Legislators by searching for NCSL podcasts wherever you get your podcasts. Tim Storey, NCSL’s CEO, hosts “Legislatures: The Inside Storey” where he focuses on leadership and legislatures. The “Our American States” podcast dives into some of the most challenging public policy issues facing legislators. On “Across the Aisle” host Kelley Griffin tells stories of bipartisanship. Also check out our special series “Building Democracy” on the history of legislatures.
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