The more insidious side of UPromise

Personal finance

Today’s question of the day is drawing good responses. Some people have also taken the time to warn about how credit cards can easily lead to overspending. This can certainly happen, especially with the plethora of reward cards and programs available these days.

So, I wanted to follow up with a post about UPromise. UPromise, in case anyone isn’t familiar with it already, is a program in which large companies (like Bed Bath & Beyond, Coke, Publix, Exxon, etc.) “help” families pay for college by allowing them to receive some money in an education fund in return for purchasing their items.

In the interest of full-disclosure, we signed up for UPromise in the past (the reward program, not the credit card) but personally didn’t find their service worthwhile, mainly because we seldom purchased products or from the companies that participated in the program, and when we did, we thought the savings were pretty paltry. However, many of our co-workers and friends, especially those with kids, use the service and are very happy with it.

When UPromise first came out, I remember reading an article that I thought was very eye-opening, because it discussed UPromise from a business standpoint rather than from the consumers’. I think its content is worth discussing again here.

UPromise was founded by Michael Bronner, a direct marketing guru. Nothing at all wrong with that, but as a savvy consumer, it’s worthwhile to keep this in the back of your mind.

Whereas from most consumers’ point of view, UPromise might be perceived as a nice service (perhaps even erroneously a non-profit) that helps people pay for their kids’ colleges, from the companies’ point of view, UPromise is a direct marketing tool and a cheap way to retain customers.

The biggest selling point to them is not an altruistic one but that UPromise builds switching costs. Once consumers have signed up with a company that helps them “save” for their children’s college education, they’ll be loath to leave it. To quote from the article:

“If I’m saving for my child’s college education by doing business with AT&T or Citibank, and I have my family all enrolled and saving in Upromise, who will break out of that loop?” Bronner asks. “I have to think hard when WorldCom calls up and offers me $25, because suddenly, that money I spend every month on long distance is not going toward my grandkid’s college-savings account. I may be conditioned to take the deal, but I can see now the long-term benefit of that relationship with a company.”

(Okay, obviously the Worldcom reference shows the age of the article.)

I’m not out to lambast UPromise; in fact, having it as an option is probably better than not having it at all. But like all rewards and “spend to save” programs, UPromise is probably the most beneficial if you’re already saving for a child’s education and can get some incremental savings on items and services you’re already purchasing. The truth is you’ll never accumulate enough money to pay for 4-years of college using only this program since most merchants are offering only 1-2% or a couple of cents for every dollar you spend.

Also, it shows why you should always look at your finances from a holistic standpoint. If you’re staying with Exxon because it’s paying you $0.01 through UPromise for every dollar you pump gas, but the Chevron down the street is 10 cents cheaper, you might want to reconsider. Assuming gas is $3 at Exxon, you’re paying $2.97 for gas instead of $2.90 per gallon at Chevron, meaning you could still be putting $0.03 per gallon toward the education fund and saving the extra $0.07 elsewhere using Chevron.

Unfortunately, with all the technology, information, and choices available to us these days comes a large amount of time and effort that must be spent unravelling the complexity that inevitably arises: Do I sign up for this offer? When do I breakeven? When should I switch? Can I combine this offer with that one and save even more? (Maybe in the example above, you have a credit card that allows additional savings at Exxon but not Chevron, etc.)

Remember that as wonderful as a for-profit service might appear to be, it must also turn a profit in order to survive, so there’s usually a flip-side to the story. Now that UPromise is being acquired by Sallie Mae, it will be interesting to see what, if anything, changes.


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One Feedback on "The more insidious side of UPromise"

Auntie Annie

What the article doesn’t say is Upromise makes you sign up for their 529 plan to get any rewards! An even nicer deal for them.

A new service called Little Grad ( gets you the rewards without the catches. And since they’re a straight online service, the rewards are better and the website is MUCH easier. I use it, like it, and have saved a bunch of money into my nephews 529s… thanks very much!