Double-dipping college rewards

My son will be starting college in a few weeks, and I’ve been busy thinking about how to turn this event into more opportunities to earn points & miles.  We’ve already been earning miles while saving for college.  Can we earn while paying for college too?  I think we can.  Here’s the plan…

Step 1: Earn rewards while saving for college

Ever since Gift of College gift cards became available at Toys R Us stores, I’ve been buying them with rewards-earning credit cards.  The fee is $5.95 per $500, which amounts to 1.19%.  Since many credit cards offer rewards that exceed 1.19%, it’s easy to come out ahead.  Even better has been to use these purchases as a way to meet spend requirements for a new signup bonus or for a big spend bonus.

After buying these cards, my next step has been to load their value to my son’s 529 college savings account via GiftofCollege.com.  It generally takes about two weeks for funds to show up in the 529 account.  529 accounts are a great way to save for college since earnings are not federally taxed as long as they are used to pay for college.  Plus, some states offer tax breaks for 529 contributions as well.  More about the advantages of 529 plans can be found here.

Full details about earning rewards when saving for college or when paying for student loans can be found in the following new Frequent Miler resource pages:

Step 2: Earn rewards while paying for college

Now we have a bunch of money ready to go in my son’s 529 account (we’ve been saving since he was a baby).  If we pay his tuition directly from that account, we won’t earn any additional rewards.  Instead, I believe we can do the following:

  1. Pay tuition indirectly by credit card (to earn rewards)
  2. Withdraw the same amount of money from the 529 plan to my bank account in order to pay the credit card bill

This is my first time through this, so I could be wrong, but I believe that the 529 withdrawals will lead to me receiving IRS form 1099-Q at the end of the year.  Then, as long as I have receipts showing the same amount paid towards eligible education expenses, there shouldn’t be a withdrawal penalty.

How to pay tuition by credit card

Some colleges and universities accept credit cards directly.  Obviously that’s the easiest option, but in some cases it can be prohibitively expensive.  The University of Michigan (where my son will be a student) does not offer that option at all.

Instead, my best option is to pay with the Plastiq bill payment service (see our Complete Guide to Plastiq credit card payments).

Plastiq normally charges a 2.5% fee.  That’s more than the value of rewards earned on most credit cards so it is only a good idea when using Plastiq to earn a spend bonus.  If you sign up for new credit cards with big signup bonuses, for example, Plastiq can be a great way to meet the minimum spend requirements.

In my case, since I write about Plastiq for this blog, I’ve stockpiled quite a bit of Plastiq’s Fee Free Dollars (FFDs) by referring others.  FFDs are used to pay bills (up to that dollar amount) with no fee.  For example, if you have 1,000 FFDs, you can pay a $1,000 bill by credit card with no fee.  That’s a $25 savings.  Since I have a large amount of FFDs, I’m in the unique position of being able to pay my son’s tuition by credit card fee-free.

Those without a stockpile of FFDs, could refer others.  For each friend you refer, once they make payments totaling $500 or more, you get 1,000 FFDs and they get 500 FFDs.  Alternatively, use Plastiq to pay tuition only when you need to meet spend for a new signup bonus or for a big spend bonus.

Wrap Up

So, thanks to Gift of College, I earned rewards while saving for my son’s college.  And now, thanks to Plastiq, I expect to earn rewards again while paying for his college.

Next step: he’ll turn 18 in November and he’ll be eligible for his own credit cards.  More rewards to come!

About Greg The Frequent Miler

Greg is the owner, founder, and primary author of the Frequent Miler. He earns millions of points and miles each year, mostly without flying, and dedicates this blog to teaching others how to do the same.

More articles by Greg The Frequent Miler »

Pingbacks

  1. […] FM author Nick and I are approaching near-opposite ends of the greatest journey on earth: parenthood.  Nick announced last weekend that his first child is expected to arrive in January.  I’m looking forward to his posts on how to earn miles while changing diapers.  Meanwhile, my son has just started college and I’m busy earning rewards while paying tuition (see: Double-dipping college rewards). […]

Comments

  1. My daughter is also starting at U of M Ann Arbor later this month and I was quite surprised that it does not accept credit card payments for tuition even with a fee.

  2. Exactly how I’ve paid for school — kind of sad I only have one tuition bill left! 😛

    Back in the day, I was doing Amex GCs through the Barclay portal and getting 6x Arrivals points total, then paying 2.5% through the school to liquidate. A cool ~4% profit. Miss the ease of that.

    One thing about the 529 is that they may delay withdrawals if you’ve had recent deposits to them (I know PA is making me wait about 2 weeks). Fortunately, I put the bulk of my tuition payments on business credit cards at the beginning of their statement cycle, so can live without the money for a bit.

  3. TIP:

    Some schools (like Texas A&M, for example) use Barnes and Noble as their bookstore. Barnes and Noble gift cards can sometimes be bought on the aftermarket for up to a 17% discount.

  4. Greg, are you going straight at Chase cards when your son turns 18? I’m assuming you’ve added him as an AU on a few of your old cards and his score is looking pretty nice.

  5. Not sure if you plan to/are able to take advantage of college tax credits including American Oppurtunity Tax Credit. My understanding is that tuition paid via 529 plans are considered “double dipping” by the IRS and are disallowed for the tax credit. I am not an accountant so could absolutely be missing something here. If this may be an option for you, please check with your accountant – your tax savings may outweigh any point advantage.

  6. Another issue for your accountant.

    Deposits to 529 plans are gifts for gift and estate tax purposes. Accordingly, for those planning to do this on a large scale, understand that gifts over $14,000 a year are subject to gift tax or require use of your one time estate tax amount, and require reporting.

    I believe you can average gifts to 529 plans over 5 years though to smooth out single years of large contributions.

  7. Greg, have you done a post regarding rules & application strategy for 18 year olds who will be full time students? My son just turned 18 and I foolishly assumed he’d need to wait until he had his own job to begin to earn bonuses.

    Anita

    • My son recently turned 18. He’s had a part-time job for over a year and has been an authorized user on some of our cards for several years. I referred him for the Chase Freedom card and he was denied due to lack of credit history. (He only used his cards once in a while and wasn’t responsible for making the payments – they asked if he was responsible for making the payments when we called reconsideration.) So, I referred him for Discover. I have Discover It, but he used my referral to apply for the student card. If I remember correctly, there wasn’t even a place to put in his income on the student card application. He was approved with a small credit line and we both earned our bonuses (referrer and referee). He’s also automatically getting double points his first year.
      We’ll try Chase again later, but right now we’re happy building his credit with Discover. He’s also doing a couple bank bonuses that we find out about at Doctor of Credit.

    • No I haven’t written anything like that yet. I did help my niece get her own card a couple of years ago. Like Skippy, we ended up going with Discover. In her case, she wasn’t even approved for the student card, but she was offered a no-fee secured card. That was a good deal because it gave her an easy way to establish credit. After a year, they moved her to a regular Discover card.

      • My kids both got Southwest cards as freshman. They listed their income from summer jobs. i helped with the minimum spend and then they were only to use that card for expenses I approved. They are both good kids and never abused the card but it could be risky for kids that age.

  8. What sucks is you were able to buy GoC gc’s online for $500 and now they’ve limited them to $300. Hopefully B&M’s like Toys R Us won’t follow suit.

  9. Curious if anyone has found these cards showing up anywhere else other than Toys R Us or Babies R Us? Any updates on when and where?

    • They are also at H-E-B Texas Grocery and Fred’s Pharmacy. We don’t yet have an update as to when they’ll show up in Best Buy, but they are supposed to at some point. If you click the link in Step 1 that says Best options for buying Gift of College savings cards, it has up-to-date information and there’s a rep from Gift of College was been answering questions in the comments.

  10. My daughter just headed to college last week and is 18. We got her a Wells Fargo college card since that is where we bank. I would love a post on your thought process for credit cards for your 18 year old.

  11. Has anyone tried to buy a $500 Toys R Us GC from cardpool, raise, etc for a ~5% discount and then take that GC over to Toys R Us and use it to buy a $500 GoC GC with the $5.95 load fee?

  12. Even if your taking loans this still works, I can pay tuition with a credit card, prior to the date the school squares the loan disbursement with the amount owed and then receive the whole loan DD into my checking then pay off the credit card. I also sometimes take more than necessary in loans to pay off older loans if they are at a higher rate earn points by cycling the “change check” to gift card purchases to money orders

Leave a Reply

Your email address will not be published. Required fields are marked *