CollegeBacker publicly launches its college savings account advisory service

Paying for college sucks. And, unfortunately, college is getting more expensive just as having that degree is only increasing in importance as one of the keys to the kingdom of American success.

I saved for college for years, working part-time jobs over several summers to help pay for the cost of my fancy liberal arts school degree (ask me about my job as a crawfish packer in Baton Rouge).

Well, one of the fanciest private schools in the nation and one of the premiere startup accelerators are jointly backing a company that purports to have a solution to the college payment dilemma — pitching an easier way to create savings accounts specifically designed to pay for college.

It’s called CollegeBacker and it’s publicly launching its robo-advisory service that automates college savings by allocating money into a tax-advantaged college savings plan. Think of it as Betterment or Wealthfront for college savings.

We all know the numbers. College debt is soaring in the U.S. and its spread is now affecting the overall economic health of the country.

There are already several startups and traditional lenders that are transforming the economic pain of millennials into business opportunities — offering refinancing packages for student borrowers and graduates that consolidates their debt at lower rates.

At CollegeBacker, the goal is to encourage saving for college so the economic burden of enrollment isn’t as large when it comes time to matriculate.

Backed by Princeton University and 500 Startups the company has designed a service anyone can use to start a a 529 college savings plan with as little as $25. The plan is open to contributions from any group of people designated by the plan’s creator.

So — in an example provided by the company — someone’s grandparents could set up regular contributions to the fund, in addition to parents, or the student saver themselves.

Statistics provided by the company present a grim picture of the college savings in America. Roughly 50% of parents aren’t saving at all for college, while another 71% are setting money aside in regular checking or savings accounts. Meanwhile, college tuition costs have risen 12 times over the past 30 years, and are expected to double again over the next 10, according to the company.

The benefits of a 529 plan are similar to that of a Roth IRA. Contributions are made in the form of post-tax dollars — basically they’re not subject to gains taxes as long as the money is applied to college costs.

Less than 3% of U.S. families that could benefit from using a 529 savings plan are actually enrolled in one, according to data rom the Government Accountability Office.

Of course, there are other ways to avoid paying the high price of U.S. university tuition. Many European colleges are cheap or free and offer an alternative to a degree in the U.S.

And the 529 account plans are not without their problems. Principly, the company behind CollegeBacker, charges fees of 0.50% of the net assets in accounts (according to a 2015 filing with the SEC) — that’s on top of fees charged by the fund managers themselves.

Meanwhile according to the Bloomberg report in September 2014, companies like Vanguard and T. Rowe Price are dropping fees.

In January, T. Rowe Price will drop the program management fee on most of its 529 plans to 0.13 percent from 0.2 percent, though there’s an additional fund management fee of up to 0.68 percent. Vanguard Group, the lowest-cost of the major 529 providers, just dropped the total expenses on its age-based funds to 0.19 percent from 0.21 percent.

That means CollegeBacker’s charges may be significantly higher than investing in an account directly would be.

Still, parents or savings conscious students would still be better off investing in a 529 savings account these days than not investing at all. Education costs don’t look like they’re going to fall anytime soon, and with interest rates near zero, anyone planning for college does need all the help they can get.