“[Prior to Freshman Fund] I would have no idea if my cash gift was used for college or candy.”

A year ago I wanted to give college money to two children who live in another state. I discovered that the process was confusing from a gift-giver perspective because I wasn’t a legal guardian. In the wake of the tragedy this family experienced, I didn’t want to burden their new legal guardian with paperwork. Plus, I was concerned that talking about money for college would be misconstrued as tacky, or worse, preachy. But, it was the best way I felt I could help considering the physical distance between us.

In the end I bought stocks for the kids. My hope that when they get ownership of the stock at age 18 they choose to use it for college. But I accept they might spend it foolishly, for a cruise or other short-lived pleasure.

Enter: a solution for anyone who wants to give the gift of education. The site FreshmanFund.com allows you to send educational money to anyone with an email address. I spoke with Jeff Frese about Freshman Fund and the advantages of using 529 Plans.

How does Freshman Fund simplify the gift-giving process?

I started Freshman Fund because there was no simple way to gift into a 529 account. Prior to Freshman Fund there were a couple of antiquated options to choose from. I could give cash to the parent with the hopes that they would deposit the cash, write their own check with 529 account number on it, print a 529 deposit coupon, stuff all of that into an envelope, address it, lick, seal it and mail it into the 529. Not exactly simple and not transparent at all. I would have no idea if my cash gift was used for college or candy. Freshman Fund is transparent, the gift giver knows the money can only go into the 529 and the parent isn’t embarrassed to ask because the gift isn’t for them, it’s for the child’s education. Or the parent could give me 529 deposit coupons and I could write my own check but then I also have all of their private financial information and it is just not secure.

What are some of the benefits for parents who sign up kids at Freshman Fund?

Some of the benefits go beyond the family, Freshman Fund is good for the environment. College savings gifts keep plastic toys, packaging and wrapping paper out of land fills. We aren’t suggesting kids shouldn’t get toys and junk for holidays and birthdays, Freshman Fund is just another gift option but one that is better for the child, parents and environment. $454 billion is spent on holiday gifts each year, setting aside a small fraction of that amount each year would cover all college tuition for the generations to come.

Lessening the burden on a young person starting out in life is another benefit of Freshman Fund. Graduating college with $20,000 or more in student loan debt is tough. Every little bit helps and if you start early and save often you can lessen the loan burden on young people just starting out in life.

People still give savings bonds as college savings gifts. Savings bond stop growing once they reach maturity, they are taxable and people lose track of them after 18 years. I guarantee there are savings bonds with my name on them buried deep in some landfill somewhere. Freshman Fund lets the people who would have given savings bonds gifts give 529 gifts that grow until cashed out, they are tax fee and impossible to misplace.

Parents still need to save for retirement while saving for college. Freshman Fund eases their savings burden somewhat. If parents can tap into an extra $1,200/year in college savings through Freshman Fund gifts than that’s an extra $1,200 that can go towards retirement.

Lots of parents don’t want all of the stuff from the birthday parties. There is an increasing trend for parents to send birthday invites requesting just the invitees presence and not presents. People still want to give gifts. Freshman Fund allows them to give a meaningful gift without adding to the clutter and stuff in the house.

Freshman Fund will also offer parents a Freshman Fund FutureTrust rebate credit card where a percentage of every dollar they spend using the card will go directly into the 529 savings plan.

What are some advantages to using a 529 Plan for college savings?

The main advantage of using a 529 Plan for college savings is the tax benefits. The money grows tax free as long as the proceeds are used for college expenses such as tuition, room & board, books and fees. If you invest $5,000 into your 529 plan and it doubles to $10,000, the entire $10,000 is yours to use for qualified college expenses. Saving for college without a 529 could incur income or capital gains tax which reduce your total savings.

529 savings receive a more favorable treatment in federal financial aid calculations than other savings vehicles such as high-interest savings accounts or non-tax-advantaged mutual funds.

Maximum contribution limits are very high – up to $120,000 in a given tax year and $250,000 per beneficiary on average.

Account balances are protected from bankruptcy.

Account holders always retain control of the assets in the plan – not the beneficiary.

Plan beneficiaries can be changed at any time.

Money in the account can be used in over 800 foreign / overseas schools as well as over 8,000 schools located in the United States.

529 plans can be used to pay for tuition, room and board, fees, books and any other supplies necessary for attending a class.

Why does giving through Freshman Fund make a great gift?

It’s better than a toy. When the toys are long forgotten, the wisdom and generosity of contributors to a 529 plan will be remembered.

How does Freshman Fund make a difference?

We raise awareness and facilitate the savings process. Of the the parents with children who could have a 529 plan only 13% do. 87% of parents aren’t using 529s for college savings and it is widely accepted as the best vehicle for college savings. Freshman Fund simpifies the whole savings process from awareness, to education, to referrals to experts for 529 plan sign ups to connecting with your social network to accelerate the savings process through Freshman Fund 529 gifting.

Thanks, Jeff! I hope your site encourages more people to give the gift of college to the kids in their lives. I’m setting up an account for my soon-to-arrive nephew. I look forward to seeing it grow!

Related:

Geezeo Groups: Planning for College, Financial Aid, Paying Off Student Loans
How to Make Sense of 529 Plans
Saving for Others

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This entry was posted on Tuesday, September 16th, 2008 at 9:42 am and is filed under Saving, Social/Environmental. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.