Reward good grades with 529 plan contributions
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By Mark Kantrowitz

July 12, 2018

Want a good excuse for making extra contributions to a child or grandchild’s 529 college savings plan? How about rewarding them for getting good grades? 

How to reward good grades

One approach involves setting a sliding scale, where getting an A earns more than a B and a B more than a C. Another approach rewards improvement in academic performance. Rewards could be offered based on grades in specific classes or on the mid-year or full-year GPA. 

These approaches avoid all-or-nothing rewards, which can backfire and discourage students. 

Impact of GPA on college enrollment and graduation

There is strong evidence that students who get better grades in high school are more likely to enroll in college and graduate from college:

  • Data from the High School Longitudinal Study of 2009 (HLS:09) demonstrates a strong relationship between high school GPA and college enrollment. Only 48% of high school students with a 2.0 to 2.4 GPA enrolled in college, compared with 66% of students with a 2.5 to 2.9 GPA, 80% of students with a 3.0 to 3.4 GPA and 92% of students with a 3.5 to 4.0 GPA. 
  • Data from the 2009 follow-up to the 2003-04 Beginning Postsecondary Students Longitudinal Study (BPS:04/09) demonstrates a strong relationship between high school GPA and college graduation. Only 31% of students with a 2.0 to 2.4 high school GPA graduate with a Bachelor’s degree within six years, compared with 41% of students with a 2.5 to 2.9 GPA, 57% of students with a 3.0 to 3.4 GPA and 77% of students with a 3.5 to 4.0 GPA. 

Perhaps, rewarding children and grandchildren for good grades not only helps improve their academic performance, but also helps them get into and graduate from college. 

Contributions to a 529 plan may increase the likelihood that the student will enroll in college, because it sets an expectation that the student will enroll in college. Some cities and states provide seed money for 529 plans and matching contributions for low-income students for this reason.

An added financial benefit is that parents and grandparents may also be able to get a state income tax deduction for their contributions to the state’s 529 plan.

Other programs that reward good grades

There are existing programs that reward good grades and participation in academic activities with scholarships and other incentives. These include raise.me, MDRC’s Performance-Based Scholarships, Pizza Hut’s Book It Program, Six Flags Read to Succeed and Discover Card. Many car insurance companies have good grade discounts. 

Mixed research results

Research concerning the impact of paying for good grades is mixed. A large study did not find that cash rewards for good grades yielded measurable improvements in outcomes, although there may have been improvements in student engagement. However, cash rewards for reading books had a positive impact on reading scores and cash rewards for completing homework had an impact on academic performance. So, perhaps rewarding specific tasks might be more effective than an abstract metric like grades.

Other studies reported that tangible rewards, such as video game consoles, toys, pizza and ice cream, were more effective than money. But, the MDRC studies on performance-based scholarships demonstrated that rewarding academic performance with cash yielded significant improvements in college retention and graduation rates.

A good place to start:

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