A New Way to Shop for a College

As parents indulge their children with video games and other gifts, they're often unable to shake one of their biggest worries: every dollar spent today is one that won't be around for the kids' college years. A recent report from the College Board only stoked those fears: in the past year annual tuition costs surged an average of 7.7% to $3,754 for a four-year public college and 5.5% to $17,123 for a private university. Fortunately, though, there are now more ways than ever to save for college.

Forty-eight states currently offer a prepaid-tuition plan or tax-advantaged college-savings plan, and several have both types of these so-called 529 plans. In the first half of the year, the number of prepaid-plan accounts was up 33% from the same period in 2000, while the number of savings-plan accounts rose 181%.

A for-profit college-savings network called Upromise hopes to add even more savers with a unique twist on the 529 program. It offers parents ways to save even as they spend. A few cents of each dollar they pay for gas, a car or even a home can go into a special college-savings account set up through Upromise. "People are stuck. They're not saving, and they feel guilty. This allows them to get started," says Upromise founder Michael Bronner.

The money you save can go directly to a 529 plan run by Fidelity or Salomon Smith Barney. The laws governing these plans have made them highly attractive, allowing tax-free appreciation of investments and tax-free withdrawals for education, beginning in 2002. Also, starting next year, savers will be able to roll over money for the same beneficiary to another state's 529 plan with no federal tax or penalty.

Thousands of restaurants, online merchants and major companies, such as General Motors and ExxonMobil, have teamed up with Upromise to offer rebates on purchases. In return, these corporations hope to improve customer loyalty. Hal Cramer, president of ExxonMobil, says his firm uses its marketing budget to pay the rebates and a membership fee to Upromise.

For every gallon of gas you buy, ExxonMobil will contribute up to 4* to your Upromise account. GM rebates $150 for college if you buy or lease one of its vehicles. Want to refinance your mortgage? Countrywide Home Loans will contribute 0.2% of your loan amount to the college account. Century 21, Coldwell Banker and ERA will give back 0.5% on the purchase or sale price of a home. Use a credit card you've registered with Upromise at any of 7,000 restaurants, and get 10% back as college savings. Live in New England? If you shop at A&P;, Shaw's, Star Market, Shop Rite or Stop & Shop, you will get back 3% to 5% of your grocery spending on hundreds of brands like Coke, Kellogg's and Kraft. The rest of the country can look forward to the same rewards from grocers next year.

It's easy to sign up with Upromise: just register your credit cards, loyalty cards and billing information at upromise.com; or call 888-434-9111. Friends and relatives can also sign up to contribute to a favorite child's account.

Joseph Hurley, author of The Best Way to Save for College, warns that "some people may be misled" if they think that rebates from Upromise merchants will pay for the entire cost of a child's college education. "Just see it," he says, "as a potentially small, and in some cases more significant, benefit to the college-savings fund." Upromise estimates that a family earning about $60,000 a year, with 15 years to save for college, could accumulate $13,000 to $15,000 if it actively participates in the Upromise program.

Next year Upromise plans to sign up more merchants and investment firms and to allow parents, relatives and friends to make direct contributions to the accounts. Each of these moves will help parents grow their college savings. The sooner they start, the better chance they will have to beat the rising cost of tuition.

Sharon Epperson is a correspondent for cnbc Business News. E-mail her at sharon.epperson@nbc.com