Columnist Sandra Thompson: There are better ways to save money for college

Sandra Thompson

Sunday, Feb. 28, 1999 | 9:37 a.m.

"PAY $50 A MONTH for eight years and you'll be guaranteed $50,000," the man on the phone said.

So my friends invited him to their home for a presentation on how they could start a college fund for their 10-year-old son.

Since I'm jumping through those college financial hoops now, I asked if I could sit in on the presentation. The offer sounded too good to be true.

Dave says his company, College Fund Division of United Insurance Companies Inc., has invested about $200 million since 1969 to help students get an education. The company has been around for about 30 years in the South, but has been in Nevada only two years.

At the outset, he says that the $50,000 is indeed guaranteed.

He then queries my friends about their thoughts on the value of a college education. He asks what school their son attends and asks to see his report card.

"What difference do his grades make?" I ask. "He's only 10 years old."

Dave explains that his company likes to work with students with B averages and above. They want to make sure the child has an ability and desire to attend college.

(What if that changes when he's older?)

After asking about the boy's interests, Dave explains that "when we consider a family for funding, we want to be comfortable with the family."

He says his company sponsors national and state teachers of the year awards, and worked with the Clark County School District on financial aid workshops. He shows a certificate of appreciation from the district as if that is an endorsement of sorts.

Then Dave talks money. For the freshman year, he says, up to $4,000 is available; $5,000 for sophomores, etc. About $30,000 would be available for five years of college; $20,000 would be available for graduate school. So to get the full $50,000, you'd have to spend seven years in school.

But the $50,000 isn't a gift or a grant. It's a loan. And the loan must be repaid with interest.

So why do you pay $50 a month before you even apply for the loan? The amount is based on a child's age. For example, if he were 16, it would be $120 a month.

The $50 pays for a term-life insurance plan for the student and a parent. Dave says it's "collateral" for the loan.

"So this isn't a college investment plan, it's a life insurance plan," I say.

"Yes," he replies, as if I had just correctly answered the final question on "Jeopardy."

In this case, there would be $19,000 in life insurance and disability coverage on my friend and $20,000 on her son.

Dave says his company is the only one in the country that offers such a funding plan, which is aimed at middle-income families.

The program is only open to high school juniors and younger. Seniors aren't eligible since you must be in the program for a year before you are eligible to receive a loan.

Spokesmen for the Nevada Department of Education and the UNLV financial aid office were not familiar with this type of funding. They do acknowledge that college funding is becoming a lucrative business.

There are many sources of funding -- and you don't have to buy life insurance to qualify for aid. If you can't qualify for any type of aid but still can't afford to send your child to college, then this plan is for you, Dave says.

But if your child is 10, I say, there are better investment options out there.

My friends are right to seek information about the different plans. They also learned that some of the information (scholarship searches, funding sources) firms are charging for is available free.

It's available at universities, high schools and on the Internet. Try these sites: finaid.org or fastweb.com, which lists available scholarships.

There are pre-paid tuition programs, which Nevada just initiated, and many investment funds. There are several types of federal and private loans.

While area high schools conduct preparing-for-college workshops, more middle schools should offer such sessions. It's never too early to start planning.

Explore all the options. And more importantly, know what you're getting into before you sign on the dotted line.