I recently met a young nursing assistant who mentioned that she's going back to school to become a registered nurse. I asked if she planned to continue working during her studies. She answered that she plans to work part-time but is not concerned about paying for school, because so far, her education has been covered by CollegeBacker.
If, like me, you've been scarred by the cost of higher education, you may wonder how someone can feel so calm about paying for school without taking out student loans. It was enough to inspire a closer look at CollegeBacker.
What is CollegeBacker?
CollegeBacker combines crowdfunding, robo-investment advice, and 529 college savings plans. In essence, CollegeBacker makes it easy for friends and family to contribute to your child's education. If you don't have a savings plan set up for your budding genius, CollegeBacker will walk you through the process.
The company behind it is called Principly, a registered investment advisor. It’s based in San Francisco and has been around since September 2016.
CollegeBacker does not charge fees, although you may run into fees for particular investments you’ve selected. Some folks offer CollegeBacker a tip each month, but it is not mandatory.
529 savings plans
CollegeBacker is built around the 529 savings plan, a state-run college savings program that comes with tax major benefits. Not only are the investments in the account sheltered from capital gains and dividend taxes, but the funds can be withdrawn without incurring income tax so long as they go toward qualified educational expenses.
Those expenses include K-12 schooling and college costs such as tuition, books, housing, and school supplies. The plan is universally recognized, meaning you can live in one state, invest in a 529 plan offered by another state, and send your child to a qualified university in yet another state. A 529 plan can help cover the cost of higher education at more than 6,000 colleges and universities in the U.S. and over 400 abroad.
That said, you may be entitled to a state income tax deduction if you stick to a 529 plan in your state of residence.
Here's where CollegeBacker comes in
The lure of CollegeBacker is that it makes it easy for multiple people to contribute to your child's education through a single plan. Family and friends can use a link provided by CollegeBacker to make one-time or recurring contributions. Just to make it all a little easier, they accept credit cards, debit cards, or a bank transfer.
The company behind CollegeBacker is made up of investment advisors, which means they can perform several roles. They walk you through opening a 529 plan, advise you on low-cost funds, and help you reduce the level of investment risk, particularly as your child gets closer to college age. Furthermore, as an SEC-registered investment advisor, CollegeBacker has a fiduciary duty to put your interests first.
The entire process is automated, meaning you never have to speak with an investment advisor.
Is the site safe?
Online financial dealings have a different feel to them than walking into a brick-and-mortar establishment, at least for some of us. If safety was the first concern that popped into your mind, you may be comforted to know that the website uses cutting-edge encryption and security practices to safeguard your personal information.
There's no minimum contribution on CollegeBacker itself. But as contributions are considered gifts by the IRS, and there are limits to how much you can give without incurring gift taxes. For 2019, the amount is $15,000 per child per account. So, if we were feeling particularly generous, my spouse and I could each give $15,000 for a total of $30,000 per child this tax year.
Total contribution limits vary by state, but most of them are extremely high, which is another appeal of 529 funds. South Carolina and Virginia, for example, both have a limit of $500,000. It's tough to imagine any child needing more than that amount to pay for school.
Speaking as a giver
This program streamlines the way the important people in your child's life can contribute to their education. And as someone on the other end, I can tell you: the simpler, the better. For years, my husband and I have included a check (made out to the parents) with the gifts we send to the children of friends and relatives. It's our way of saying, "College is going to cost you a boatload. Put this modest amount toward that expense."
I've always considered these gifts a rather pitiful drop in the ocean, but this calculator on the homepage of CollegeBacker's website offered some interesting perspective. It reveals how much the fund would be worth if you contributed a set amount each month, rather than waiting for special occasions. You can set it for as little as $1 or as much as you would like (up to a certain limit). It also showed how much the total would be if several other people pitched in a few dollars each month.
Toys are great, but...
Think about your child's playroom -- and about the toys strewn around the house. CollegeBacker is an easy way to tell friends and family that while you appreciate their gifts, the kids really don't need more new toys at the moment. What they could use is an educational leg up.
Whether you need extra funds to pay for private school today or college in the future, this is a nice way to involve the people who want to help. Everyone wins.