By Bill DeBaun, Senior Director, Data and Strategic Initiatives
Reading time: Three minutes
College savings accounts (CSAs) have the potential to help students and families save money that could pay for education or training after high school. Despite their promise, increasing the take-up of CSAs may require additional investments and interventions
in raising financial literacy rates.
The study uses “comprehensive administrative data from over 900,000 Illinois 529 accounts (2000-2023) linked to educational outcomes, plus complementary surveys of account owners and parents.”
CSAs, also sometimes known as 529 plans, provide a tax-advantaged vehicle for families to save for college, which is important because “tuition costs have increased 1,200% since 1980, pricing out the very families who would benefit most
from higher education’s mobility-enhancing effects,” according to the study’s authors.
Notably, the study links higher savings to improved educational outcomes. Students with larger CSA balances were more likely to attend four-year and selective institutions, more likely to transfer from community colleges to universities, and more likely
to pursue graduate degrees.
The authors find that although nearly every ZIP code in Illinois now has an open CSA account, ownership is heavily concentrated among higher-income, more-educated households.
The research highlights that barriers are not only financial but also behavioral. Among Illinois parents surveyed, 61% of those who could save enough to cover half of their child’s future costs believed those savings would be “meaningless.” Parents frequently
underestimate the impact of modest, consistent contributions (e.g., monthly $100 contributions over 10-15 years). Additionally, administrative friction like paperwork and misperceptions about financial aid contribute families not participating.
Financial literacy appears to play a powerful role in the differential take-up of CSAs. Of CSA owners, 79% scored highly on financial literacy measures in the study, compared to only 32% of non-owners. This knowledge gap might help explain why even families
with disposable income often fail to save effectively.
Unfortunately, significant disparities appear in savings levels within the pool of account holders. In 2023, the top 5% of owners held nearly 30% of all deposits, while half of account holders collectively owned just 8%. In a statistic that reflects the
inequality of the United States overall, the authors note, “The average balance for the top 1% of account owners was $531,000, compared to an average of $9,000 for the bottom 50%.”
The authors suggest that federal and state policy, in addition to dispelling financial myths and increasing financial literacy, could be helpful for expanding the take-up of and effective savings levels in CSAs. The authors suggest that tools like calculators
that show the growth of consistent monthly contributions could help parents visualize the impact of saving. Additionally, targeted financial literacy interventions delivered through schools, employers, or trusted community partners may also broaden
participation. The National College Attainment Network (NCAN) has written recently about how financial literacy curricula could spur Free
Application for Federal Student Aid (FAFSA) completion, maybe they have a use case here, too.
The research also proposes options for Congress to get involved like expanding contribution limits, offering income-based matching incentives, or “opt-out” enrollment that could help ensure that 529 plans serve as tools for narrowing college access and
attainment gaps, not just wealth preservation for higher-income families.
Ultimately, this study advances the idea of CSAs as behavioral interventions, not just financial vehicles. For NCAN members, these findings reinforce a familiar theme: affordability is not just about costs; it is also about perceptions, knowledge, and
support. Advisors and practitioners can play an important role in connecting families to savings opportunities and helping them see the value of even modest contributions.
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