||Ask Dr. Don
Affinity programs for college
Dear Dr. Don,
What do you think about the Upromise college saving plan? Is it
trustworthy? I have four children to put through school in a few
years, and I'd like your opinion about this program.
Several affinity programs have sprung up to help parents find everyday ways to put money in their Section
529 college savings plans. Upromise
is one such plan, BabyMint
is another. Upromise is the larger of the two; both are reputable.
Registering your credit cards, using affiliated merchants
or both earns you points that translate into contributions to a
college savings plan account. The money can later be withdrawn tax-free
from a Section 529 account when used for qualified education expenses.
You can also get friends and relatives to set up accounts that can
be used to finance your children's college expenses.
In addition to these plans, several individual credit card companies and financial institutions have set up similar plans: Buy a quart of milk with your credit card, and a few pennies go into your 529 account. MBNA, Visa and Fidelity are among the institutions that are involved in such offers for some 529 plans.
My concern isn't that the firms aren't trustworthy,
since the money is being put into your
college savings plan account; it's that consumers stop making
good purchase decisions because they get caught up in the idea that
they're earning points for the children's college fund.
We've all heard stories about how people have altered
their behavior or travel plans to earn frequent flier miles. Affinity
programs try to build loyalty and influence behavior to increase
business for the firms affiliated with the program. There's nothing
wrong with that, as long as you understand and manage the process.
But if you end up spending an extra 10 percent on a purchase to
earn 4 percent in points, you've lost money by making that decision.
You're also making a lot of your transaction information
available to the company, and need to be aware of how that information
agree to its provisions and be aware of any changes to that policy
Spending to accumulate college savings is a much longer
path to reach your financial goal than to just establishing a college
savings program. Spending $40 on a dinner out may put $2 in a college
savings account, but spending $8 on dinner at home allows you to
invest the $32 difference.
Think of these programs as the frosting, not the cake,
in funding your children's college expenses. I joined one of these
plans in October and have a whopping $10.86 in the account. I'll
admit that I haven't been very aggressive about finding new ways
to earn points.
My only child will be college age in seven years.
The college textbook for the course I taught last semester cost
my students $105. This shouldn't be your only plan for funding the
Another concern is that in the current (2001) tax
year you couldn't contribute to both an Education IRA, now named
the Coverdell Education Savings Account (CESA), and a Section 529
college savings plan for the same beneficiary.
That won't be a problem after 2001, but some people
were bound to be disappointed with the limitation this year.
Contributions to both types of plans
will result in the contributions to the CESA being
considered excess contributions and subject to penalty.
for more information on this limitation.
-- Updated: Oct. 18,