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College-Savings Firms Adopt Cash-Back Loyalty Programs

Many Are Expanding Their Network of 529 Savings Partners

Two college-savings companies are borrowing a page from the consumer cash-back loyalty playbook, offering customers rebates on services including refinancing mortgages or opening online bank accounts. Futuretrust, a unit of Destination Maternity Corp., and Upromise Investments have partnered with a series of other financial services companies to offer rebates that can be swept into section 529 college-savings plans.

Futuretrust has teamed up with Citigroup and Wells Fargo's Wachovia Bank to introduce a program where customers get 25 basis points of the amount that they refinance or originate in a mortgage deposited in a 529 plan, said Adam Bashe, a managing director at the company. It also has partnered with Waterfield Bank, an Irvine, Calif., online banking company, to deposit 1% annually of a customer's average daily balance in a 529 plan.

Futuretrust began offering the online banking rebate seven months ago and has been offering the mortgage rebate for three years. Bashe admits Futuretrust "probably couldn't have picked a worse time" to start these programs, "but now that the dust has settled" from the recession, at least to some extent, "people are opening accounts and taking advantage of these opportunities."

Loyalty programs are raising the stakes by adding more partners and offering different types of rebates to prompt investors to use 529 plans to save for college. "Our goal is to help get people educated about 529 college savings and how using our different banking relationships can help them save more," Bashe said.

Upromise is also offering "big-ticket rebates," said Debby Hohler, a spokeswoman for the Newton, Mass., company. It has partnered with Coldwell Banker Real Estate, ERA Franchise Systems and Century 21 Real Estate to provide up to $3,000 in college savings for people buying or selling a home. It also gives consumers up to $250 if they refinance or get a mortgage through Quicken Loans. It is not offering rebates on online banking yet, Hohler said.

"Big-ticket rebates are one of the biggest ways to save for college, but it is also one of the biggest secrets," she said. "Most people don't know anything about this."

Hohler said Upromise has marketed these rewards to its members, and the partner companies "do some limited marketing."

Joe Hurley, the founder of, said loyalty programs are a "valuable enhancement" because they are "an easy way for shoppers to get dollars into college 529 savings accounts without any extra effort. As long as it is a free service, and they aren't spending on items they wouldn't otherwise purchase, it is a no-lose proposition," he said.

Hurley does not expect that either Upromise or Futuretrust will begin charging members for this service. Instead, both generate revenue by charging partner companies a fee.

"I think consumers are rightfully skeptical about these programs," Hurley said. However, "it is a free service, and both have developed strong reputations."

Destination Maternity, a Philadelphia maternity apparel retailer, started Futuretrust in December 2003 because, Bashe said, market research indicated that paying for a child's education was among the leading concerns for new mothers.

Bashe, who had worked at Upromise, said he saw an opportunity to partner with financial services companies and retailers "to educate and help get people started on saving for college. I think a lot of people didn't know what 529 plans were, and there are a lot of people that still don't know what they are," he said.

The company began by offering the Futuretrust Mastercard, which gives customers rebates of 1% to 10% on every purchase that can be deposited into a 529 plan. Since then, it has partnered with Axa Advisors, a unit of Axa Group, to provide investment advice to customers, and Putnam Investments, which provides Futuretrust's customers with discounts on its investment products.

Unlike Upromise, which deposits savings into Upromise 529 plans only, Futuretrust's rebates can be deposited into any 529 plan. Bashe said that the Upromise 529 plan "isn't the most suitable plan" for every customer. For example, states such as Illinois offer considerable state tax benefits for residents who use the state's 529 plan, he said.

"We work with Axa to make our customers use the 529 plan that is most suitable for them," he said.

Hohler said that Upromise rewards can be transferred quarterly into a Upromise plan, transferred directly to pay a Sallie Mae student loan or a member can request a check and deposit funds into other 529 plans.

Upromise's 11 million members have saved more than $500 million for college costs since the company launched in 2001, Hohler said.

Bashe said that Futuretrust, which has only a "couple hundred thousand accounts," remains considerably smaller than Upromise but continues to expand rapidly. It increased membership 14% this year, after expanding membership 27% in 2008, he said. Futuretrust predicts strong growth next year when market conditions stabilize.

"A lot of consumers are very concerned right now about credit card reform, and I think that has them very worried about opening a credit card," he said. "I think once that goes into effect in February the dust will settle and things can get back to normal."

Futuretrust has established relationships with four states-Georgia, Kentucky, Illinois and Louisiana-and "is in conversations" with others, Bashe said, to offer rebates to individuals who use 529 plans offered by those states.

For example, Futuretrust's customers who open an Illinois 529 plan get a $25 rebate when they first use a Futuretrust Mastercard. Futuretrust is working to develop more relationships, Bashe said, including potentially with a term life insurance company.

"We are starting to see a lot of unique opportunities for consumers," Bashe said. "People are starting to see opportunities to take everyday spending and turning that into college savings."


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