Credit card rebates help build college fund

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 for saving for college, but a supplement," says Koleszar.

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 about $400 each month, or $4,800 a year for 18 years, which comes to a grand total of $86,400. 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.

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 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."