The Road Ahead for Middle Class Families

Middle-class families are squeezed as never before. Here, ten ideas to help us all get back on track.

By Barbara Kantrowitz from Reader's Digest | November 2011

IDEA 8
Make it easier to pay for college
The single most effective way to reach or stay in the middle class is to have a postsecondary degree. People with a bachelor’s degree now make 84 percent more over their lifetime than people who have only a high school diploma. But students from middle-income families are half as likely to graduate as students who come from families in the top fifth. Many of those who do graduate have huge loans; more than two thirds of students earning diplomas from four-year colleges and universities graduate with debt, with the average amount in 2008 over $23,000.

In a recent Huffington Post article, Brittany Baker, a 2011 graduate of Allegheny College, wrote about her college debt: “I have so many loans — subsidized and unsubsidized, Perkins and PLUS — at so many different and variable interest rates that I can’t keep them straight or find them all listed online in one clear, concise venue.” For most families, federal aid is the best option, but many families find the application process daunting and don’t get all the money they could. Recent improvements to the notoriously complex Free Application for Federal Student Aid (FAFSA) reduced the number of questions and made it easier to transfer IRS data electronically, but more changes are needed to make securing aid less cumbersome. Another idea that could help: expanding the American Opportunity Credit, a tax benefit that provides up to $2,500 a year for tuition, certain fees, books, and supplies. Congress has extended it to 2012, but many education experts would like to see it become permanent, giving families up to $10,000 in tax relief over four years.

WILL HELP:
Students and families seeking financial aid for college.

WON’T HELP:
Recent grads, who still carry huge debt.

CHALLENGES:
Improvements in financial aid don’t address the larger issue: the ever-soaring cost of college, public and private.

IDEA 9
Make it easier to save for retirement

A generation ago, many workers had employer-provided pension plans to supplement their Social Security. They were also more likely to save than the current generation. Now millions of workers rely on their own financial savvy to plan for retirement, choosing among such options as IRAs and 401(k) plans. It’s a risky business, and many workers freeze — and lose years of savings as a result. One solution that has won support from both conservatives and liberals is automatic enrollment in IRAs or 401(k) plans.

“Automatic enrollment makes saving easier, and it also reduces the chances of people making mistakes in their investments,” says David John, a senior research fellow at the Heritage Foundation. Another way to help people now in their 20s and 30s is to increase the age at which people are eligible to receive Social Security benefits. Because of the recession and generally longer life spans, many baby boomers are already working well into their 60s. John argues that pushing the retirement age up to 70 by 2035 is an excellent way to ensure that future generations will be able to rely on Social Security without massive tax increases. “Social Security has run into cash flow problems, and they are only going to become greater,” says John. “The longer we wait to deal with them, the more expensive they are going to be.”

WILL HELP:
Younger people who are just beginning their careers.

WON’T HELP:
Older people who haven’t planned for retirement and don’t have enough money put away.

CHALLENGES:
Messing with Social Security is always politically risky.

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