How About Shopping Your Way Through College?
It’s like frequent flier miles, but the reward is a trip to college.
Beginning this fall, consumers who buy clothes, cars or computers from companies that partner with start-up company UPromise Inc. will be offered rebates in the form of contributions to a tax-free college savings fund.
The benefits would be mutual, the Brookline, Mass.-based UPromise says: The consumer would get help paying for their kids’ tuition, and companies would secure customer loyalty.
“We’ve established a company that has as its mission to fundamentally alter the affordability and accessibility of college for American families,” said UPromise founder Michael Bronner.
UPromise, unveiled last week, will work like this: When a consumer buys from a UPromise partner, a rebate of up to 5% of the purchase price will be put into a tax-deferred education investment account.
It would take a lot of shopping, though, to earn a full tuition.
A 5% rebate on a $20,000 automobile would deposit $1,000 in a tax-deferred account. Earning 10% interest for 15 years, that money would grow to just under $4,200 and would be taxed only upon withdrawal.
According to UPromise estimates, it will cost $146,000 to send two children to a public university in 15 years. The cost will be more than double that--$315,000--at a private university.
The company’s goal is to generate $50 billion in college savings in five years.
At least one expert on higher education affordability says UPromise misses the point, however: People who spend a lot of money aren’t the ones who really need help affording college.
“It [would be] $50 billion that is going for the most part to people whose kids are going to college with or without this thing,” said David Breneman, dean of the University of Virginia’s Curry School of Education.
Breneman said the past few years have seen “an orgy of help for the wealthy to pay for college,” with public policy focusing on tax credits that favor the wealthy.
But supporters say the rebate program could help the poor, because many people can designate one person as their beneficiary.
“Even someone with a lower income is spending on things like telephone, a car, a mortgage,” said Bill Ford, whose venture capital firm, General Atlantic Partners, contributed $15 million to the $34 million in first-round funding.
“I think we’ve really created a solution that goes very deep into the socioeconomic sphere,” he said.
Bronner says the problem of affordability affects most Americans. UPromise commissioned research that showed 87% of Americans believe a college degree is now as important as a high school diploma once was, but 82% believed the cost was out of reach or becoming out of reach.
Bronner says neither government nor philanthropy will solve the problem, so the best bet is to direct consumer spending toward a good cause.
“We can try to get the whole country to spend less and save more, which is really what needs to happen, on the one hand,” says Bronner, who founded a company in college that became the Boston-based marketing firm Digitas Inc. “On the other hand, one of the things this country does best, and what makes it go, is spending. What we’re trying to do is play to the country’s strength.”
UPromise has support from such big names as venture capitalist John Doerr, former Time Warner CEO Nick Nicholas and John Whitehead, former chairman of the Federal Reserve Bank of New York.
Bronner would not disclose the names of companies that already have agreed to participate, but said they include major retailers as well as top automobile and computer makers.
The rebate percentage will vary, but Bronner said with many it will be between 3% and 5%.
Bronner acknowledges the system is inherently tilted toward wealthier families, who spend more and thus would save more.
He and partner Jeff Bussgang have pledged to put the value of more than half their UPromise stock in a foundation to help very low-income students.
The venture capitalists backing the project also have promised a portion of their return will go to the foundation.
