Plan Allows Families to Save for College Each Time They Make a Purchase By JENNIFER JACOBSON
Taking a page from airline frequent-flier programs, a Massachusetts college-savings company formally unveiled a plan Tuesday to help families accrue tuition money by buying from AT&T, McDonald's, and Coca-Cola, among others.
After registering for an account with the college-savings company, Upromise Inc., families can accumulate money each time they make a purchase from any of the participating companies. The companies will then rebate as little as half a percent but as much as 12 percent of the purchase price.
For example, when a family buys a meal from one of the 7,000 participating restaurants, the business will contribute 10 percent of the bill to the college account. Likewise, when someone buys a house through Century 21, Coldwell Banker, or ERA, those companies will pay half a percent of the purchase price into the savings account. And 70 online retailers have volunteered to rebate up to 12 percent.
Parents can also encourage family members and friends to contribute a portion of their purchases by signing up for the service on Upromise's Web site <http://www.upromise.com/>, where parents can also track their child's account. The Upromise service is free to users.
Parents can also sweep their Upromise money into a "529" college-savings plan managed by Salomon Smith Barney or Fidelity Investments. Money invested in such plans grows tax-deferred, is managed according to the child's age, and functions as a trust so parents retain full control over the funds.
The contributing companies, which will feature Upromise in mailers and in in-store displays, will benefit from the publicity and will pay Upromise to participate.
The company was founded by Michael Bronner, who dropped out of Boston University in the early 1980's because he could not afford tuition. Mr. Bronner, Upromise's chief executive officer, says families who open a savings account and stick with it for several years will save more than just a few bucks. "This is allowing them to take the spending they normally do and save for college and pull their friends and family together," he said. "They need to save more to spend less, but they're going to have to spend."
The median income in the United States for a married couple with children is $58,000, the company says. That family could accumulate more than $20,000 in 15 years if it got two other people to participate as well, Upromise says. Without the extra help, the family could save $16,000.
"The latest Federal Reserve survey found that the median family with kids has $13,000 in financial assets," said Jim Doyle, a spokesman for the company. "So if you grow that over 15 years by interest, you end up with $19,000. Based on the companies we have today, a family can match or exceed their financial assets they would otherwise have through savings."
Last year a study commissioned by Upromise suggested that tuition at private colleges could soon range as high as $100,000. Critics decried the study, saying it keyed in on the tuition at the most expensive institutions in order to scare people into participating. Timothy J. McDonough, a spokesman for the American Council on Education, says there are better ways to save for college, like investing in independent retirement accounts and money-market accounts: "The amount of rebate on each [Upromise] purchase is pretty small," he said.
Mr. Doyle responded that "college costs are what they are" and that Upromise was not trying to scare anyone. "Parents are already scared," he said. "That's why some of them aren't saving. We're giving them a way to get going, to open accounts they're not opening right now."