Navigating the College Affordability Crisis: Insights from College Savings Accounts

With higher education costs consistently outpacing inflation and public funding declining, college affordability has become a critical barrier to economic mobility for middle- and low-income families. While College Savings Accounts (CSAs), or 529 plans, offer tax-advantaged vehicles for college savings, their adoption patterns and educational impacts remain poorly understood. Using comprehensive administrative data from over 900,000 Illinois 529 accounts (2000-2023) linked to educational outcomes, plus complementary surveys of account owners and parents, we provide the first large-scale analysis of CSA participation and effectiveness. We find that while CSA adoption has expanded to every ZIP code in Illinois, participation remains concentrated among higher-income, more educated families. Financial literacy emerges as a key barrier: 61% of parents who could save enough to cover half of future college costs still perceive their potential savings as meaningless. Among participants, higher savings are strongly correlated with better educational outcomes, including four-year college enrollment, attendance at selective institutions, and the pursuit of post-graduate degrees. These findings suggest that targeted interventions addressing financial literacy gaps and misperceptions about modest savings could significantly expand CSA effectiveness as a tool for educational equity. Beyond state-level 529 program optimization, our findings suggest several promising avenues for federal policy coordination and institutional innovation.