Of all the gifts that grandparents would like to give their grandchildren, a college education probably tops the list. Grandparents need to know how to pay for college for grandchildren without jeopardizing any financial aid for which they are eligible. Freshman Fund can help. In this email interview founder Jeff Frese discusses using Freshman Fund to help your grandchildren pay for college without jeopardizing their financial aid package.
Q. I just created an account for my sixteen-year-old granddaughter and it was really easy and sort of fun. I like the personalized message feature, the photo and the Facebook link. These seem particularly suited to teens. But isn’t that a little late to be starting to save for college?
A. 529s can still be the right option for the parents and grandparents of high schoolers planning to attend college. The reason? Financial aid. The US government's student aid program treats funds in a 529 much more favorably than funds in a student's bank account. So if you or family members are preparing to write large checks to help cover college costs, you should explore opening a 529, even at the last minute, for the potential benefit to the student’s financial aid application.
Also, a student is accepting more than $12,000 from the grandparents, he or she can run into the gift-tax limit and face income taxes on the monies being transferred. 529 plans have an allowable tax-free one-time maximum contribution of $120,000, which might make them the right choice for gifts over $12,000.
Q. Are there any reasons why Freshman Fund should be especially appealing to grandparents?
A. According to a recent study by The Hartford Financial Services Group, 65% of grandparents plan to contribute financially to their grandchildren's college education, but less than one third of all survey participants have coordinated college savings for the grandchildren with their parents. Freshman Fund solves this problem. There is no need for the grandparents to know the account number or even the name of the 529 plan their grandchild is invested in. Grandparents just go to their grandchild’s college savings registry page on Freshman Fund, enter payment information and give the gift of college savings to their grandchildren. We handle all the processing and route the money directly into the 529 plan.
Q. With the current financial environment, everyone is concerned about the safety of investments. How safe is an investment in a 529 account?
A. 529s have a spectrum of investment options available to suit your temperament. Feeling cautious? You can choose a conservative portfolio that invests in top-shelf bonds and government securities. If you're new to 529s you can choose from over 100 plans, including the CollegeSure plan from Arizona which offers an FDIC-insured Certificate of Deposit portfolio, meaning the federal government will guarantee your savings up to at least $100,000. And whatever 529 you choose, you are covered by the SIPC investor protection program, which protects your assets in the event of fraud or broker failure.
Q. If one uses Freshman Fund to make a deposit in a 529, how quickly does the money actually arrive in the 529?
A. Every 529 has a minimum contribution, but Freshman Fund lets your friends and family give the gift that makes sense for them. Gifts that fall under the plan minimum are held in an FDIC-insured account until the family's gifts meet the minimum threshold, at which point they are transferred to the student's 529 plan. For a gift that meets the minimum, it usually takes about 5-10 business days to reach the student's plan.
Q. I know that Freshman Fund does not charge a fee for its service. The website says that it makes money by allowing advertisers to reach out to its users responsibly. Does that language refer to the entities that are reached by clinking on the hyperlinks you have provided?
A. I wouldn’t even use the term advertising for the complimentary services we will offer our customers. We aim to provide information about financial and educational products that help families. Our offers are passive, meaning the parent will need to click on a link. All of our offers will help families save money and reach their goals.
Q. In what way is the current financial situation impacting Freshman Fund?
A. The current financial crisis has actually had a beneficial effect on Freshman Fund. We have seen increased activity over the last couple of weeks. I believe we are seeing a real change in the way Americans think about money. I think we will see a shift towards increasing saving while decreasing spending on things we don’t really need. People are choosing to give the gift of college savings over more stuff. In eighteen years that plastic thing you gave as a gift will be worth zero dollars, but your gift of college savings could triple in value.
Q. How did you get the idea for Freshman Fund?
A. I was at my niece’s fourth birthday party, and I watched her tear through a pile of gifts that was taller than she was. At the end of the mêlée there was a huge mess of wrapping paper and packaging and my gift was off in the corner already forgotten. I told my sister that from now on I was going to put money into her daughter’s college fund instead of buying more things she didn’t need. I assumed I could go online and just do it. To my surprise, there was no simple way for me to give a college savings gift into my niece’s 529 plan, and so at that moment the idea that became Freshman Fund was born.
Q. I like the statement of values posted on your website. Were any of your grandparents important in forming your personal values?
A. I think my grandparents were very instrumental in forming my personal values. My father’s parents lived nearby, so we saw them at all the holidays and family occasions, but for one week each summer I was sent to live with them. My grandfather was a naturalist, and we spent a lot of time on field trips learning about life and nature. My grandmother was never afraid to call a spade a spade, and when we were out of line, she let us know it. She didn’t just admonish us; she actually explained why we were out of line, and I think a lot of that helped form my value system.