American Indian Tribes: Role of Education
Education is the foundation of individuals, families, communities, nations, and democracy. As the U.S. Department of Education correctly notes:
“… In this new information age, driven by science and technology and an increasingly competitive global economy, the future of our children will depend, in part, on the quality of education they receive in the classroom. … The link between education and earning power is confirmed by a range of economic studies. Fifteen years ago a worker with a college degree made 38 percent more, on average, than a worker with a high school degree. Today, that difference is 73 percent. Over the course of a career, a person with a bachelor’s degree will earn, on average, $600,000 more than a person who has a high school diploma. This makes the return on a college investment nearly double the stock market’s historical rate of return.” (2000 Annual Report to Congress, U.S. Department of Education, http://www2.ed.gov/about/offices/list/ocr/AnnRpt2000/edlite-goal.html)
The World Bank echoes a similar view:
“Investment in education benefits the individual, society, and the world. Broad-based education of good quality is among the most powerful instruments known to reduce poverty and inequality. With proven benefits for personal health, it also strengthens nations’ economic health by laying the foundation for sustained economic growth. For individuals and nations, it is key to creating, applying, and spreading knowledge – and thus to the development of dynamic, global competitive economies. And it is fundamental for the construction of democratic societies.” (Education and Development, The World Bank; citation omitted)
I am unreservedly convinced that, all things being equal, the quality of education is one of the key differentiators in an individual or society’s advancement; American Indian tribes no exception. As a side note, all things are not always equal, however. For example, Russia ranks number three in educational attainment among top 43 countries; but it does not fully harness the benefits of education as evident by Russia’s ranking towards the bottom, 37 in GDP per adult and 36 in productivity. (Robert D. Atkinson and Scott M. Andes, “The Atlantic Century II: Benchmarking EU and U.S. Innovation & Competitiveness,” (The Information Technology and Innovation foundation, July 2011, http://www.itif.org/files/2011-atlantic-century.pdf) Tribes also know very well that, along with education, governance and confluence of other factors working in concert account for a society’s advancement. 
The graph above from Bureau of Labor Statistics (http://www.bls.gov/emp/ep_chart_001.htm) shows positive effects of education on earnings and employment. And the virtuous cycle of higher education, higher income, higher employment, higher savings, and higher educational attainment is perhaps self-reinforcing.
With the preceding general context, let’s try to connect the dots to American Indian tribes. Given rapid globalization, ever increasing role of innovation and information technology in all aspects of our lives, disruptive, health-restoring innovations mounting at ever so greater speed and ferocity challenges to inefficient, static, lethargic, monolithic yesterday’s powerful incumbents, American Indian tribes, their elders face an insurmountable task of preparing highly skilled future leaders, nurturing young talent and future generations while preserving and protecting their rich heritage, language, culture, and environment.
American Indian communities fully recognize the need for education to prepare their future generation for better job opportunities and for attainment of better quality of life. The research of Hertel et al. (2008) of Washington University’s Center for Social Development (CSD) found that the community ranks education as number one tribal asset, followed by family and youth in second and third ranks. Hertel and Jager (2010) of CSD through their research connect the dots linking education to higher income; savings for education to rising expectations; rising expectations to higher efforts; higher effort to educational achievement. Thus intuition and evolving research indicate that saving for education is, through interlinked reinforcing elements, positively linked to attainment of education and college completion. And education is positively linked to higher income.
We must note, however, that tribes face another unique challenge in educating its leaders and youth. They wish to devise a strategy that continues to strengthen strong cultural identity (Huffman 2011), preserves their uniquely rich heritage, and reverses “reservation outmigration.” They want their future educated leaders and college-bound youth to return to reservations and help build strong tribal communities. Indeed a daunting task!
How Indian Tribes can encourage savings for education by its members?
As discussed in a companion blog post, tribes that make per capita distribution of Gaming Class II and III income generally accumulate distributive share of minors in so-called IGRA trust for the benefit of minors. Funds in the trust accumulate tax deferred while the members are minor and eventually can be used for any purpose, including education, when taxable distributions are made. But relying upon this single source of funding post-secondary education of tribal youth has several shortcomings. First, all tribes do not make per capita distribution; in fact only one-fourth of gaming tribes do. Second, the funds are not reserved solely for education. Third, this mechanism perhaps does not achieve the powerful intangible benefits that come from engaging and involving in savings for education, building expectations of higher education, and resulting higher efforts and academic success.
529 College Savings Plans
These are tax incentivized plans for saving for post-secondary education. Amounts contributed to these plans for named beneficiaries are removed from the contributor’s estate for estate tax and earnings on the accumulated funds are never taxed if used for qualifying educational expenses. These plans are supervised by states and have a great deal of flexibility in investment options and decisions; they are currently more popular among higher income households.
In order to encourage greater participation in these plans by lower and middle income families, states are becoming more innovative. One of the innovations is providing matching contributions to eligible families’ plans in order to spur greater participation. At present the states of Arkansas, Colorado, Kansas, Louisiana, Maine, Michigan, Missouri, Nevada, North Dakota, Rhoda Island, Utah, and West Virginia have some form of matching mechanism on meeting varying levels of eligibility tests. For an excellent source on 519 plans, visit a great web resource at http://www.savingforcollege.com/compare_529_plans/?plan_question_ids%5B%5D=438&page=compare_plan_questions.
Can Indian Tribes spur savings for education through matching mechanism?
Indian tribes should study the state matching plans to design their own matching mechanism that can help the tribal members to save for education with matched funds structured in such a way that may perhaps qualify for tax-free treatment of the matches under the so-called “general welfare doctrine” for eligible qualifying members. I wish to add a cautionary note, however. The Internal Revenue Service over the years has developed stringent guidelines for according tax-free treatment of tribe-provided benefits to the members under this doctrine. Tribes should develop the match programs with consultation with knowledgeable tax advisors and seek private letter rulings from the IRS before implementing these benefits plans.