Parenting Pointers: Crowdfunding 529s

College costs are rising 8% annually and student loan debt currently exceeds credit card debt. One company is using crowdfunding technology to change the way parents save for their child’s college education.

With GradSave, parents, friends and families give directly to a child's college savings plan, instead of giving material gifts or "trinkets" that will likely wear out over time for birthdays and holidays. A GradSave account is linked directly to a 529 savings plan, so earnings accrue and are withdrawn tax-free. The gift-givers know that gifts are going directly to a child's college savings plan.

Marcos Cordero, GradSave CEO and Harvard MBA, answered a few questions about GradSave and 529 plans.

 

1) What are the advantages of setting up a 529?

The two main advantages to a 529 savings plan are that the deposits are state-tax deductible (in most states) and interest and earnings accrue tax-free. Interest alone can significantly accelerate savings. When it comes to college savings, tax-free compound interest can be amazing. For example, say you, your child’s grandparents and one more relative each save $25 every month for your toddler’s future college savings plan. Well, in 19 years (Halfway through the toddler’s education) the amount saved would be $35,284 AFTER TAX paid on the growth. However, if that money is saved in a tax-free 529 Savings plan it has a double effect. No taxes, so you save $5,350, but also that money that would have gone to the tax man also compounds interest and grows on it’s own. So you really end up with  $42,943, which is $7,659 additional savings. 

2) How does the crowdfunding aspect work?

Crowdfunding with GradSave was designed to be simple and user-friendly. Once on the GradSave website, users create a free account, which can even be done with one-click sign-up via your Facebook account. You can import pictures from Facebook or upload from a computer file. Once the account is set up, users share their profiles using a unique URL (i.e. www. gradsave.com/Marcos) with friends and family via social media and email to let them know the child is saving for college. Gift givers then use the easy one-click “donate” button to gift college funds by using a credit card, even direct deposit.

Then, users track progress and watch college savings grow closer to their goals with a personalized savings “thermometer." GradSave also allows users to track history on who has gifted, making writing thank you notes easier. Users link their GradSave account to any 529 savings plan, a tax-free savings account when used for higher education (until the 529 is linked, money is FDIC insured at Bank of America).

Over years, students continue saving and sharing their goals with friends and family, because it really does “take a village” to raise a child in modern economic times. GradSave is also excited to soon offer the recurring payment option. With recurring payments, those who want to give regularly can do so hassle free for important occasions or every month, ensuring the gifts are going directly to the savings account and truly embodying the essence of crowdfunding.

3) Why should someone give a contribution to a 529 instead of a more traditional gift?

Traditional gifts are nice, but will likely wear out over time or are forgotten over the years. By donating to a 529 you are giving two gifts that really matter and last: a college education and relief from student loan debt. You can feel good that you are bringing the one you love closer to his or her dreams. In fact, we get many emails from gift givers saying how excited they are to give this gift, because it’s meaningful, it’s thoughtful, and it’s responsible.

4) How can parents direct gift-givers to contribute to a 529 instead of something else?

Letting your friends and family know you are saving for your child’s college fund and you would like them to contribute is very easy. GradSave is specifically designed with social media integration, which allows you to let your Facebook friends and Twitter followers know you are working towards a specific goal. You can even keep them updated with your progress by “sharing” via GradSave email updates. The idea here is that when someone makes a contribution gift they will share via their social networks, letting others know that you are making substantial progress towards your goals and encouraging them to give you gifts, too. 

We also see many parents include their child’s dedicated URL in E-vites and even paper invitations to their child’s profile. E-vite is one of the most successful sources so we certainly encourage parents use electronic invitations when possible.

There are also numerous crafted numerous e-mail templates for every occasion to send to friends and family, to make it even easier, and give you wording ideas. We’ve made it as easy as possible for college savings to be the “go-to” gift idea for birthdays and holidays.

5) What can money in a 529 be used for?

Money in a 529 can be used for any qualified education costs, including but not limited to tuition, fees, book, supplies, etc., it’s actually a fairly broad. Qualified expenses also include room and board, which most scholarships and grants do not cover. Basically, expenses that are required to attend are covered (this can even include computers and other equipment).