Credit card rebates help build college fund

Credit card rebate programs allow parents, friends and relatives to save money for a child's college education by shopping at designated retailers.

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With programs such as Upromise and BabyMint, the more purchases you make, the more money gets tucked away for college. Both allow you to transfer the dollars you save with rebates into 529 college savings plans.

Both rebate programs are free. But there may be some fees associated with 529 plans.

The aim is to help families get a jump on college costs by stashing small cash rebates for several years.

It helps get families started. Families can cover college costs if they start early and save regularly.

"Upromise has helped over 6 million families save toward their child's college education," says Matthew Parillo, director of marketing and communications at Upromise.

Buyer benefits
Upromise members can earn rebates ranging from one percent to as much as 25 percent per purchase from several thousand restaurants, retail stores and online merchants.

Members can register their credit cards, debit cards, as well as grocery and drug store loyalty cards, to begin earning rebates that are directed into a 529 plan.

Sample rebates include a 1-percent rebate when you shop online at Bed Bath & Beyond, a 3-percent rebate from Barnes & Noble.com and 4-percent rebates for online purchases at Target.com and Walmart.com.

For each gallon of gas you pump at Exxon or Mobil, earn one cent for every gallon of gas you pump when you buy 20 gallons or more in a calendar month. And if you pay with the Citi Upromise card, you'll save an additional 2-percent toward your college savings.

Buy or sell a home through a participating Century 21, Coldwell Banker or ERA office, and up to $3,000 gets dumped into your Upromise account. Members can also book their travel arrangements, from flights, car rentals, vacation packages, cruises and hotel accommodations, through Expedia and earn a one percent rebate, or save 4-percent when they rent a car from Budget.

A grocery-shopping program is now available nationwide. Members can shop at over 20,000 grocery and drug store locations, earning 1-percent to 5-percent rebates on over 5,000 different everyday products, such as Huggies diapers, Tylenol, Ivory soap to paper goods and food items. By registering your grocery store or drug store loyalty cards, you can pay by credit, debit and even cash.

Every quarter, the money in a Upromise account can be transferred to either the Upromise-administered 529 plan from Vanguard or a state-sponsored 529 plan for residents in Arkansas, New York, Iowa and Colorado.

With BabyMint, members earn rebates ranging from one percent up to 30 percent by shopping at over 500 online -- or more than 30,000 locations -- including restaurants, brick & mortar stores, online and catalog retailers. This year alone they have added Ruby Tuesday, Mrs. Field's Cookies, Hollywood Video and Restoration Hardware to their rebate partnerships.

While members can link any credit card or debit card to their BabyMint account, the BabyMint credit card must be used within the brick & mortar stores to receive the retailer's rebate. No matter where you shop with the BabyMint card, you'll earn a one percent rebate on your purchase. Plus the BabyMint credit card generates unlimited rebates.

A new BabyMint program is the Tuition Rewards program. Every dollar members earn in shopping rebates is matched by a dollar off of tuition at more than 150 colleges and universities across the U.S. There is no cost to participate in this program, but you must opt-in. For example, let's say you spend $100 at an affiliate retailer, such as Eddie Bauer, using your BabyMint credit card. You'll earn $5 for shopping at Eddie Bauer, $1 for using your BabyMint credit card, plus receive a matching tuition credit of $6. That's a total of $12 earned in one transaction.

Since September 2004, BabyMint members can also direct their rebates to pay down outstanding student loans.

A BabyMint account can be directly linked to any 529 plan or any savings vehicle, such as a Coverdall educational savings account, chosen by a member. Rebates of $25 or more are transferred into a 529 plan or other account on a monthly basis.

The more families and friends involved in these kinds of programs the better. It would take a whole village to earn enough rebates to pay for a child's entire college tuition.

"The average monthly payout for our members is $46," says Bill Koleszar, chief marketing officer at BabyMint.

"It's important to remember that the BabyMint rebate program was never intended to become a substitute to saving for college, but a supplement," says Koleszar.

BabyMint's Koleszar estimates that a family averaging $46 monthly for 18 years with an interest rate of 9 percent (compounded monthly), and an initial balance of zero, would accumulate about $24,600 for college.

That's a cool chunk of change, but hardly enough to cover four years of college today, let alone in the future.

"Certainly if you're going to make those purchases anyway, it's fine," says Kalman Chany, author of "Paying for College Without Going Broke." "But I wouldn't view this as the way to save money for college."

The real cost of rebates
And let's take a closer look at those numbers. To earn the average $46 BabyMint rebate you'd have to spend around $400 each month, or $4,800 a year for 18 years, which comes to a grand total of $86,400. That's a lot of dough. Will you really need all those purchases?

"As a general rule, we have always been skeptical of a program that touts savings but requires spending first," says Paul Richard, executive director at the Institute of Consumer Financial Education.

"If people truly want to save money, they should just save it."

And will you get the best prices by shopping through Upromise or BabyMint? Would it be easier to make those same purchases elsewhere at a lower price and plop the money you save into a college savings account?

Will you be tempted to put more on your credit card rather than just paying cash? You must consider that credit card interest rates will eat away from your overall savings if you don't pay off the balance monthly.

"You'd be better off making smart shopping decisions and getting the best possible deal," Richard says.

Families with teens may want to pass on these programs, as well.

"Unfortunately, Upromise and BabyMint aren't going to be much help to you if you have a two-year or three-year investment horizon," says Patrick LaPointe, managing partner at Marketing NPV..

Money stashed in a 529 plan needs plenty of time to grow. And that won't happen if your son or daughter is already cramming for the SAT.

On the flip side, some money saved for college is better than none. There are plenty of American families with young children that struggle to save a single dime.

"Some people are not savers. Anything that gets them to put aside some money for college is a good thing," says Ray Loewe, president of College Money, a Marlton, N.J., financial planning firm specializing in helping parents pay for college.

"It's like getting a coupon in the mail. If you get an incentive to buy something you already want, why not do it?"

Before signing on for a rebate program, be sure to scan the list of retailers carefully. Are these stores where you tend to shop already? Can you gain rebate dollars on items you already buy?

Be realistic about your spending habits. There's no point buying things you don't need just to score a few measly rebates.

"Use your head," Loewe says. "Be a smart shopper."

Credit cards with college credits
The same advice applies to credit cards tied to education rebates.

Let's start with the Citi Upromise card. Cardholders earn rebates that are added into their Upromise account. How much they earn depends on where they shop -- they earn 10-percent on grocery purchases, 2-percent on gas from Exxon-Mobil and 1-percent on all purchases anywhere. While there is a $300 annual rebate cap for contributions on the 1-percent base, there is no limit to earnings on the bonus contributions -- the 10-percent and the 2-percent.

Let's take a closer look at that $300 rebate figure. To earn $300, you'd have to spend 30 grand in a year. How many families with children can swing that? Let's say you spend $3,000 on the card. Just $30 gets added to your child's college fund.

Purchases made with the Box Tops for Education Visa Card from First USA and the Target Visa and Target Guest Card from Retailers National Bank earn rebates for local schools.

As good as you may feel about paying with a credit card that gives money to your child's school, the rate of rewards is rather piddly -- 1 percent or less. So with each dollar you spend you're only giving a penny or less to a local school.

If you do sign on for one of these cards, be sure to pay off the balance each month. Interest costs will exceed any rewards you earn in a month.

"It would totally defeat your purpose," Richard says. "The only way to get involved with these plans is to pay the balance every month."