At FiPath, college savings go social

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With the cost of higher education getting higher each year, one financial planning website is helping parents calculate how much they will need to pay for a particular college as far as 18 years into the future -- and then try to get help covering that expense.

FiPath, an Atlanta-based financial planning website, has created the College Registry, a service meant to help parents raise money for their child's college education by taking advantage of the new trend of crowdfunding.

Parents can register for free on College Registry to learn the estimated cost to attend a specific college, using an estimator that breaks down details at the top 130 colleges and universities. They can then determine their savings goals and share their profile with dozens of family and friends -- via an email system -- who can then contribute directly through a secure PayPal transaction.

"The biggest life financial decision people come about in life is when they have children," said Tim Harrington, CEO of FiPath.

"Our concept is to look out 18 years from now and figure how you'll come up with $250,000 to pay for college."

College Registry estimates, for instance, that a 2-year-old child who plans to attend the University of Pittsburgh 16 years from now will need $210,000 as an in-state student and $240,000 as an out-of-state student for four years.

"Most people the parents place on their e-mail list will buy gifts for the child [over the course of their childhood]," Mr. Harrington said. "All the parents are asking their friends to do is redirect the giving to either a 529 college savings plan or a specific college savings plan the parents have set up."

Parents on College Registry can send a new email blast to everyone on their list each time the child reaches a new milestone or celebrates a special event such as a birthday, holidays and graduations.

Crowdfunding has more commonly been used by startup companies to raise capital from investors or by individuals asking others to help fund special projects, such as recording an album or filming a documentary.

People go online and propose a project they want to raise funds for, using websites such as Kickstarter and Indiegogo. The sites usually take a small percentage and maintain standards for projects. Donations can come from anyone in the world.

For all practical purposes, funders are making non-tax-deductible gifts to interesting projects, said Trexler Proffitt, an entrepreneurship professor at Muhlenberg College in Allentown. He said this type of crowdfunding is great for getting small projects up and running, but not necessarily starting a lot of new companies or long-term job creation.

"There is very little ongoing accountability, since the funders take it on faith that their gift goes toward the project," Mr. Proffitt said. "It might or might not. But it gets people in the habit of describing their projects and making them appealing."

Crowdfunding has opened up new options for companies needing capital. Earlier this year, President Barack Obama signed the Jumpstart Our Business Startups Act, which enables entrepreneurs to harness the social power of the Internet and legally fund their businesses through crowdfunding, as opposed to going through the process or registering and selling securities or using a private offering that could only reach limited investors.

Andrew Stoltmann, a Chicago-based securities lawyer, has concerns that using crowdfunding this way might be a disaster for small, unsophisticated investors looking to make a fortune in startups. "The JOBS Act will create a situation where many more financial reprobates will be able to take advantage of small investors," Mr. Stoltmann said.

Others see potential for helping get research off the ground.

A website developed by Michigan Technological University earlier this month -- superiorideas.org -- is starting to solicit donations for nine handpicked research projects, including a sleep study, monitoring glaciers in Alaska and using infant tear drops for diagnosis. The website collected $5,000 in donations in the first 10 days.

"As a nonprofit, we can offer donations charitable status," said David Reed, vice president for research at Michigan Technological University. "We can also assure donors these are legitimate projects and a legitimate site."

A wildlife ecologist and professor at Michigan Tech, John Vucetich raised $10,000 on a commercial crowdfunding site early this year to study the wolf and moose population that his federal funding wouldn't cover. His success gave Michigan Tech the idea to start its own in-house crowdfunding website.

Mr. Harrington of College Registry said his company measured the potential impact that crowdfunding could have on a 2-year-old child and found if 20 friends and family members each donated $100 three times a year for some life event, by age 18 the child would have $90,000 for college.

"That's a huge impact when you consider most of them are giving that money in some shape or form and by giving this way they can really impact the child's life by helping them save for a college education," he said.

Money collected is held in a PayPal account until parents decide where the money ends up -- either a bank or a brokerage account.

He said FiPath makes no money on the donations. Its revenue comes from advertising based on traffic that comes to the site. FiPath facilitates the donations and follows the money wherever it goes so that contributors can always see the child's college savings account either growing or declining over time.

There are no guarantees, however, that the money will be used for college, although the hope is that most parents will use the donation for the intended purpose. The College Registry site was launched three months ago and has had thousands of visitors. Mr. Harrington declined to say how many college savings accounts have been opened so far.

"If the money is pulled out [by the parents before the child reaches college age], contributors can see the account depleted," Mr. Harrington said. "The power of [contributors] having access to the account balances makes this a powerful tool because it encourages additional giving."

education - businessnews - yourbiz

Tim Grant: tgrant@post-gazette.com or 412-263-1591


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