At the risk of forever ruining a cliche running on VERY bald tires, “every month is college savings month.” That’s because an automatic recurring monthly investment is the best way to capitalize on the years that lie between your child’s arrival and their matriculation as a newly-fledged college freshman.

Automatic Savings = Freedom From Debt
If you’re not putting something, anything into your child(ren)’s college fund each month, I implore you to start. Kick it off with a $100 at birth and save $25 per month and you’ll likely have around $12,500 saved by your child’s Freshman year.

The average college student graduates with around $19,000 in student debt, but if you’re on the automatic investment plan, you’ll be giving that number a 66% haircut. With a lower debt balance, your child can pay down their debt faster to reduce interest. Even with a normal 10-year repayment plan, and a 50/50 mix of private and government debt, your savings take the total payments for your child from over $31,000 to around $10,800, that’s over $20,000, or $2,000 per year to take additional classes, explore an alternative career, or come home to visit more often.

Whichever way you slice it, the gift of reduced debt is one with the potential to profoundly broaden the horizons of your child as a young adult, and at just $25/month it comes at a truly minimal cost to you. So I hope you’ll join me (my first little one arrives in only 6 weeks!) in making this the month you get started with an automatic savings that’s pain-free and perfect for the Future Freshman in your life.

How many of you have been to a birthday party for a five year old recently? It’s conspicuous consumption at it’s height. It’s usually a little kid standing in front of a pile gifts that is taller than they are. God Bless America that we can do this, the question is do we want to? At the end of the party we all feel empty inside for giving the kid some useless piece of crap. Wouldn’t you rather give a more meaningful gift? Sure there are options out there and one can donate to a worthy cause or charity in the kid’s name and that’s great. But the kid doesn’t care and in 18 years the kid will be a charity. The average four year school will cost over $250,000 in 18 years. Why not gift directly into the kid’s college savings plan? Great idea right? Well you can’t it doesn’t exist. didn’t exist until now.

I know this is sounding like a cheesy commercial on basic cable, “Gift into a college savings account and receive a set of knives”, but this is why I started Freshman Fund, to allow anyone to gift into a child’s college savings account. Think of it as a registry for college savings, the place to go to give and get the gift of college education.

poplinre cc

September 7, 2008 is National Grandparents Day, commemorating the soft laps, smuggled treats and big warm hugs from the folks who know how to give them better than anyone else, our grandparents.

Nobody loves you quite like your grandparents do, but while the bottomless soft spot for the grandkids might not extend to their college fund, there’s a good chance it should. For grandparents in a position to help grow the grandkids’ college funds, the gift of college savings can be a real win-win.

Investment advisor and personal finance author Kevin McKinley has listed some of the reasons grandparents might find 529 plans attractive. The number one reason? No big surprise, the tax break. But for senior grandparents (or great-grandparents!) the gift exclusion has a particular relevance, as assets transferred to a student through a 529 do not face an estate tax when the gift-giver dies.

Kevin also outlines reasons why grandparents might want to open their own 529s, with the caveat that it may affect how certain government benefits such as Medicaid are distributed.

As an aside, I should note that one of the grandparents on our site recently asked us about “a rumor” he had heard regarding grandparents who pay their grandchildren’s college tuition directly to qualify for the tax deduction on college expenses. It sounds good, but some digging around online indicates it’s probably too good to be true, for most grandparents, the best bet is to help the grandkids now with the gift of college savings.

We figured if we got a 50% favorable response to the survey for a new service that requires a slight change of behavior we could build a profitable business. To our surprise the response was overwhelmingly positive. About 80% of the parents polled said they would use the service, they would ask for contributions and they would gift into their friends accounts.

The survey was a national survey of 500 families with college bound children. The survey was conducted by Greenfield Online and the data was normalized for the the entire U.S. population by Morpace Market Research and Consulting in October, 2007.

As the customer service representative for Freshman Fund, I’ve had more than a few people ask me about 529 college savings plans, and how they’ve heard it’s not the best way for everyone to save for college.

It’s true 529s aren’t the automatic solution for every college saver on the planet, but for most parents they are the best choice. So do your homework, but know that for the majority of American families with 5 or more years left to save, 529s are the preferred choice, not the alternative.

So why 529s? What’s their secret?

It’s simple. Zero taxes.

529 investors pay no income tax and no capital gains tax on interest earned by their 529 savings as long as the funds are used for qualified expenses like college tuition, board, books, and so on.

Putting what normally goes into the tax-man’s pocket towards your child’s college bill gives 529s a big advantage over most other ways to save.

How big? Well Joe Hurley of SavingForCollege.com, the reigning world-champion expert in all things 529, recently presented an interesting analysis of the real dollar advantages of a 529 versus a taxable account such as a regular mutual fund. It’s a historical analysis showing that from 1988 to 2007, a $10,000 investment would have experienced 34% more growth in a tax-free 529 than in a taxable account.

So while I can’t promise a free lunch for you, a well-tended 529 and some tax-free savings just might give your future freshman quite a few meals courtesy of Uncle Sam.

Alexandre Duret-Lutz cc

I walked by a colleague’s office the other day and noticed that her desk was strewn with info on 529 plans, college scholarships, FAFSA forms, and a 4″ thick book listing every college in the US.

“College planning time?” I ventured an out-there guess.

She nodded and went on to tell me about how overwhelmed she was with the whole process. With a high school senior and an 8 year old son, she knew she was getting a late start.

“There’s just so much information I don’t know where to begin,” she said “I feel like I’ve really let my family down”.

While it’s true that my colleague is getting a late start, that doesn’t mean she shouldn’t start at all. Think about it: even if you start after your kid is in high school (or even college, for that matter), putting money away each month will get you that much closer. Using a tax-advantaged plan, such as a 529, will get you even closer yet. Here is the simple 3 step plan that my colleague and I set in motion: Choose and open a 529 TODAY.

1. Visit SavingForCollege.com and simply make a decision.
2. Set up automatic payroll or bank account deductions to make saving automatic.
3. Ask friends and family to help using FreshmanFund.com (you knew that would be part of the plan).

Saving for college is tough, and starting late makes it even harder. But no matter what doing SOMETHING is better than doing NOTHING.

CNN Money agress with me. And I quote, “If you’re planning to save for college and have no reason to think your kid won’t go, a low-fee 529 is the best savings tool - regardless of what anyone tells you.” Walecia Konrad wrote a great article for CNN money titled The Best Way To Save For College.  She goes into an in depth analysis of 529s by the numbers. The bottom line is a 529 is the best savings vehicle, Period!

First up, Wall Street. Bloomberg reported last week that Morgan Stanley froze the home-equity lines of credit (HELOCs) for thousands of its customers, preventing them from making further withdrawals.

During the go-go days of this decade’s housing boom <cough>bubble!</cough> HELOCs became a popular “college savings alternative” for families who had not saved enough to meet their college costs. But the days where banks can offer attractive rates and easy access to credit on the back of ever-rising home prices seem to be over, as the housing market cools and the apparently endless “morning after” for the banks behind ill-considered mortgages continues.

Second, the nonprofit Massachussetts Educational Financing Authority announced that they will be unable to provide student loans this fall for the first time in 26 years. The agency’s executive director blamed a “continued dislocation of the capital markets,” translation: no one but the government is lending money to anyone right now, and that includes college students.

The takeaway from all of this less than cheery news? The latest “financial solutions” from the wizards of Wall Street and the volatile commercial loan industry cannot be relied upon to offer college financing over a 10-18 year time frame. For new parents or parents with young children in the house, your best bet is to start saving now, a decent-sized college fund is the best insurance against financial markets where college financing can drift in and out, far out, of favor relatively quickly. And the good news is that Freshman Fund can help! (What a coincidence, eh?) Our site can involve your friends and family to jump-start and augment your college savings along the way, so start “buying” your insurance against the volatile student loan market with a college fund, and an account with Freshman Fund.

They cite Berea College, a Kentucky school that only accepts students from low-income families and provides a small, private-college education without the small, private-college cost. Students pay no tuition, earning their bachelor’s degree without incurring dollar one in student debt.

What makes this possible? One reason is that Berea is an exceptionally wealthy school, with an endowment of more than $1 billion.

In much the same way that a very small number of “super-celebrity” movie stars, or #1 athletes, grab all the headlines in their respective fields, the wealthiest colleges get the most media attention here in the U.S. And while wealth alone does not determine a school’s prestige, the wealthiest schools can do things that most schools, in fact the vast majority of schools, simply cannot do. It is the collegiate equivalent of George Clooney’s penchant for Italian villas, or Jerry Seinfeld’s Porsche habit.

There are 72 U.S. colleges with endowments in excess of $1 billion, altogether they can access a staggering $290 billion to build new dorms, expand academic and athletic programs, and, in the case of Harvard, Yale, Princeton and Stanford, experiment with low-to-no tuition for all but the wealthiest of their students.

But there are over 4,200 public and private colleges in the U.S. and these “ultra-rich” schools represent less than 2% of the total.

Now the subject of where your child might go to college can be a sensitive one at any age, but it’s sensible to consider that their college choice might fall among the other 98%.

From this perspective, a college fund is bit like insurance, you don’t know if you’re going to be in a car accident or face a health emergency, but you pay out each month so that you’re prepared if something happens. Likewise, you don’t know exactly where your child will be attending college, but a monthly investment in their college fund can give them the widest possible range of options.

And don’t worry, if they DO make it into one of the low/no-cost 2% schools, chances are good that their bachelor’s degree won’t be the end of the line, and their college fund can go towards that graduate degree, for which even the wealthiest schools are still charging full sticker price.

Is “yeah right” your first thought upon reading this headline?

Not so fast, here’s what a recent article in the Wall Street Journal had to say.

Hundreds of schools, including Stanford University and Duke University, are offering tuition discounts, prepaid plans with extra incentives and even scholarships for families that put money aside for higher education in 529 plans.

The author details several programs helping parents leverage their college nest eggs for preferred tuition treatment from select schools.

This speaks to an obvious but still noteworthy topic, colleges need students.

Today’s college-bound students are more geographically mobile and better-prepared, academically and socially, than ever before, and their increasingly sophisticated taste as to where and with whom they attend college is due in no small part to the internet.

The internet provides social interaction with peers from different states, countries and cultural backgrounds. It also provides a wealth of information on virtually every college in the United States.

As students nationwide become more discriminating about which college they apply to, competition between schools increases. What we are seeing now is the first wave of innovation towards a more personalized college experience. It’s “College2.0″ if you’re a web geek like me.

With school profiles, student course reviews and even free virtual classes all just a mouse click away for would-be applicants, colleges are expanding their outreach activities with custom academic programs and other incentives designed to maximize their appeal with the students they’d like to see on their campus next fall.

Obviously, which school your child attends is a very personal issue, and there are plenty of folks with limited choices for one reason or another. But for parents who still have plenty of time left to save, setting a reasonable college savings goal and sticking to it could go farther than ever by the time Freshman year rolls around, as competition between the schools continues to heat up.