Crowdfund a tax-free college savings account

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Thanks Tristan! Hi everyone! I’m Jordan, founder and CEO of CollegeBacker. We built CollegeBacker because saving for college is a daunting and lonely process. It’s super expensive already, will be even more expensive in 10 or 15 years, and too few parents are using the most powerful investment vehicle there is: a 529 College Savings Plan. A 529 is basically a retirement account for college that lets you invest your savings tax-free, which can add up to tens of thousands of dollars of savings over a long enough period (and that much less student-loan debt for your kids :). With CollegeBacker, you can open one of these accounts in just a few minutes and start contributing with as little as $25. CollegeBacker helps you determine a smart savings goal specific to your child and then lets you invite relatives and friends to become “Backers” on your funding team. A grandparent might set up a monthly contribution, helping you chip away at your monthly target, and birthday party guests can easily send gifts directly to the fund. Our aspiration is to make saving for college a collaborative activity in which a parent can build a community or moral and financial support for their kids. We’re excited to offer Product Hunter parents something special: if you sign up through, we’ll contribute up to $75 to your account. (Check out the page for details.) If you’re curious to read a much longer version of why we’re doing what we’re doing, please feel free to check out this Medium post we published last week: Thanks for your interest – I’m happy to answer any questions Product Hunters might have! Best, Jordan
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@jordanglee, belated congrats on the PH feature!
Really important to increase access to college - a shame that more people don't use 529 accounts, so excited to see how this changes how people save for college. I'd much rather contribute to my niece's college fund than only just buying her more toys.
I wish I had this when I was in college. CollegeBacker makes saving for college as easy and social as using Venmo. In just a few minutes, a parent can open a tax-free investment account (a 529 College Savings Plan), determine a savings goal, and invite family and friends to contribute. Golden.
Wow! This is really impressive, but (saying this as a total idiot about savings accounts). How safe is this investment? Will the money be easily accessible once the child reaches a certain age? What's the legality of this?
Hey @miguel_sebada, thanks for the questions! All investing carries risk, but we help the parent choose a low-cost, age-adjusting portfolio that starts out more aggressive (when the beneficiary is young) and automatically becomes more conservative (as they approach college age). The money is accessible at any time to the parent (who is typically the account owner), though they can also arrange to have a check sent directly to the beneficiary or to the school they're paying for. Regarding legality, we're registered with the SEC as an investment advisor and all funds are placed in a state-sponsored account (ScholarShare) that's managed by a national investment company (TIAA).
Who are you targeting as early adopters? As I see it, anyone who can do good research on 529s will most certainly opt for State 529s such as NY or RI with low fees and good managers in Vanguard and the like. Your fee is 0.5% compared to 0.16% in many state plans. For me it might not make sense to go with you which brings me to the original question - are you targeting folks who have no idea 529s exist or that saving early is good or educating about how much to save etc etc.
by the way I really applaud the FAQs on your site. You've made it somewhat transparent that certain alternatives are better than collegebacker. Also, admire your initiative in this space.
@nidhi_v_shandilya Hi Nidhi, thanks for the question! It's certainly true that some parents are willing and able to do the research to figure out which plan might be a good option for them, and are then fine using whatever account management interface the plan has. For them, especially if getting the lowest-cost option is their top priority, we may not be a great fit. We've designed an experience that (we believe) is not just vastly easier to navigate for the average parent, but is also much more powerful. Instead of a light account management interface with very few features, we offer a consumer-grade product. Instead of catering to the individual investor alone, we're social from the ground up to let the parent build a funding team and spread the financial burden of saving for college across more contributors. When you compare the possible savings value of using CollegeBacker for just one birthday party a year (let alone other events or scenarios in which a Backer like an aunt or uncle gets involved), it normally dwarfs what you would have saved by opting for a slightly less costly plan. In other words, we sit in between the "do it yourself," low-cost, direct-sold world and the expensive (and often very poor value) advisor-sold world by offering an automated investment advice that makes it easy to invest with a low-cost option and to involve more people in the process. If you'd like a long-form elaboration on the topic, please check out our Medium post. Hope this helps to answer you question!
@jordanglee Hi Jordan, you make some excellent points here. The ones I'm most convinced on are: 1) Saving for college is better than not saving - in that, fees is a moot point. So the fact that you are bringing awareness about 529s to general public is a laudable. 2) You are also right in putting money to use by crowdfunding family and friends' gifts - (although, personally it doesn't matter much because the individual cash flows from gifts from family and friends nullify some of the expenses you incur on buying gifts for your kids) BUT the big point is that you help channelize a common behavioral bias of instant gratification where saving regularly becomes the last priority. Kudos on the above. I hope you are able to incentivize more people to save better. I have a couple more questions on your fees that I couldn't find adequately on your site: A) For example, how does an individual's total annual fee compare between Collegebacker and lets say CA's direct sold 529? is your 0.5% an advisory fee only? (meaning is that what users will pay on top of the underlying management fee? If yes, can you share a range of what the total fees are based on lowest and highest investment options offered?) B) Also, one of the links took me California's 529. Is that your underlying plan? Lastly, I have a thought on a potential feature/product: what about folks who already have a 529 (most likely direct sold)? If an app can help automate the social aspect of it, like you do - I may be happy to pay for that feature. It is certainly not as profitable as your model - but has two very good pros - 1) selling to people who already have a 529 so perhaps an addition to your target market size; 2) broadening the scope to all kinds of 529s and not just one state so the added benefit of State tax exemption can also be had.
@nidhi_v_shandilya Hey Nidhi, other good questions! Yes, we use CA's direct-sold plan, ScholarShare, and the underlying fees range between 11 basis points and 18 basis points. That means, all in, CollegeBacker costs between 0.61% and 0.78% annually, which compares quite favorably to advisor-sold plans (the national average was 1.33% as of 2015) and is also pretty competitive with direct-sold plans (which average 0.47%). Over the coming months, we're excited to tell more of the story of how CollegeBacker makes the savings process a much more active one for the parents and the other people we help them involve, and how for many families this more than makes up for the small price premium we need to charge in order to build a sustainable business from the ground up. Thanks so much for the feature/product idea! Although our initial focus is on reaching the many parents who would be saving with a 529 now if the process were simpler and easier, offering increasing choice is definitely on our roadmap and we would love to work with as many state plans as we can... so stay tuned! :)