Struggling to pay for college? Perhaps crowdfunding can ride to the rescue.
Even if you’re unsure what the word “crowdfunding” means, you’ve likely been exposed to the concept. With crowdfunding, someone solicits money from the public to pay for something — such as developing an invention, like a suitcase that doubles as an airport scooter, or to help cover the costs of exorbitant medical treatments.
These campaigns usually happen on what’s known as a crowdfunding website. Examples include Kickstarter and Indiegogo, as we recently explained in “20 Unusual Ways to Earn Extra Cash.”
Now, you can also crowdfund a college education.
The Associated Press reports that more 529 plans are adding crowdfunding-like tools, enabling more college-bound students and their parents to ask friends and relatives to contribute money for the students’ college studies. For example, the AP continues:
“Some parents have asked for cash contributions as birthday gifts instead of toys. Others have used them to boost the savings of a child who lost a parent.”
When someone contributes to another person’s 529 plan, the money is transferred directly from the giver’s checking account to the recipient’s 529 account. There is no fee for this.
Mary Morris, CEO of the Virginia529 College Savings Plan, tells the AP that givers prefer contributing electronically rather than mailing checks.
Virginia529 launched a crowdfunding platform in May. In the first three weeks after the launch, about 1,200 accounts received contributions — with an average of $900.
What exactly is a 529 plan?
This is great news — particularly in an age of ever-mounting student debt — because a 529 plan is already a great way to save for college. As Money Talks News founder Stacy Johnson recently explained in “Ask Stacy — What’s the Best Way to Save for My Kid’s College?“:
“When saving for college, 529 plans are a great way to do it for the same reason your 401(k) plan is a great way to save for retirement. Namely, the savings on your income tax. Like a qualified retirement plan, earnings in these plans grow federally tax-free.”
There are two types of 529 plans: prepaid tuition plans and college savings plans. For a detailed description of the difference between the two, check out Stacy’s story.
According to federal data, every state (and the District of Columbia) offers at least one type of 529 plan. Some educational institutions, like certain private colleges, also sponsor prepaid tuition plans.
Is a 529 plan right for you?
A 529 plan is one of several ways to save for college. So as great as it is, it might not be the best option for you or a college-bound loved one.
Other options include Coverdell education savings accounts and even Roth individual retirement accounts, or Roth IRAs.
To learn more about the pros and cons of 529s, check out “Everything You Don’t Know About 529 College Savings Plans.”
How do you feel about the notion of crowdfunding a college degree? Sound off below or on our Facebook page.