The New Father: Exploring the College Fund

As I’ve said before, having a kid is expensive, so I don’t even want to think about adding another monthly payment. But I also don’t want to get hit with a $100,000 bill when my son goes off to college. The thought of having to either pay for this out of my pocket — which is far from being that deep — or by taking out a loan is terrifying, so it’s time to start thinking about starting a college fund bright and early.

“Start saving as much as you can, as early as you can. Even the small amounts add up over time, so start saving early!” JB Orecchia, CEO of SavvyMoney.com, said.

Just before starting this article, I knew nothing about college funds other than the obvious: they help pay for college. I didn’t know if I should just open an account with my bank, kind of like a savings account, and pay a certain amount every month into it, or if I should invest in the stock market, or start putting cash in a coffee can under my bed. But I started looking into it, and now realize that there is a lot to consider when thinking about starting a college fund for my son. As it turns out, there are a bunch of options out there for parents to pick from, such as traditional savings accounts, high yield investments, a 529 plan, the Gerber Life College Plan, Upromise, and SAGE Tuition Rewards.

I–like most parents–would really like it if my son could earn a full-ride scholarship, but that might not happen, so I want to explore all of my college fund options and find out what’s best for me. I’m no financial expert by any means, so I’ll just write down what I’ve learned over the past few days in hopes of helping you out when you start thinking about starting a college fund of your own.

I’ll start with traditional savings accounts. You can open one at any bank and start filling it with money, but in most cases, the interest rate is going to be very low, which means when you go to cash it out, you won’t get much more other than what you put into it. The upside is that there is little to no risk of losing your investment when it comes to traditional savings accounts, especially if the bank is federally insured.

On the other hand, you could choose to go with a high-yield investment. This can involve investing in stocks, bonds, mutual funds, real estate, or anything else out there worth investing in. I know nothing about investing, so if I choose to do this, I’m going to have to seek the help of a professional, meaning I’d have to let someone who knows what they’re doing invest my money for me. These can be risky, but they can also result in significantly more money than you had when you started.

Another option is the 529 plan, which is a state- or educational institution-operated savings plan. Only qualifying institutions can offer a 529 plan, and most states offer at least one type of 529 plan, though they vary from state to state. There are two main types: savings and prepaid. A savings plan allows you to choose an investment option that’s right for you and earn money, much like a 401K, though this plan cannot be offered by an educational institution. With a prepaid plan, you pre-pay for all or part of a college education. Also, there are usually tax benefits involved with 529 plans, though they also vary by state.

I’ve seen commercials for the Gerber Life College Plan, so I decided to look into that as well. This is a life insurance policy that’s designed to help parents pay for college. You choose the amount of money you want to pay into it each month — which becomes your fixed monthly premium — and a maturity date, which is around when your child should be starting college. Even if something happens to you, the policy comes with a guaranteed payout of full benefits for your child. Plus, once your policy reaches maturity, your benefit payout is guaranteed to be more than what you put into it.

Yet another option is Upromise, which is a way to save money for your child’s education based on purchases you make. According to their website, Upromise is partnered with more than 800 online stores, more than 8,000 restaurants, and thousands of grocery and drug stores. With this route, you open a Upromise account and up to 25% of every purchase you make from their partners goes into a college fund.

Finally, there’s SAGE Scholars Tuition Rewards, which allows you to earn up to one year of full tuition at one of their 290 participating private schools. You earn money by investing with one or more of their partners and typically earn 5% a year. Also, in most cases, SAGE’s partners offer rewards to their employees as a benefit, so if you work for one of their partners, you may want to ask about this.

There are plenty of other options out there, such as educational IRAs, tax credits like the Hope Credit and Lifetime Learning Credit, and even ways for grandparents to earn money for their grandkid’s education. Your best bet is going to be to do some research and find the right type of college fund for you. Also, consider combining some of the ones I’ve mentioned, such as starting a Gerber Life College Plan and opening a Upromise account to earn some extra money. And don’t forget to compare colleges and find the one with the best overall value.

“Try to find the colleges that give you the best deal. Consider two years at a community college then transfer those credits to a four-year school. This can cut the cost of college almost in half,” Orecchia said.

And keep in mind that college is really expensive, so the better financially prepared you are, the easier it will be to pay for your child’s education in the future.

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