Garrett Gilbertson’s daughter is only 5 years old, but he’s already thinking about how to spare her the same financial stress he faced after graduate school. The Pepperdine University alum’s student loan payments came on top of raising her and running an online security company.
While researching options for his daughter, Gilbertson learned through a friend about U-Nest, which provides a cellphone app for parents to put money into a tax-free savings account for children to spend on college tuition in the future. These accounts are often called “529 plans” for the section of the Internal Revenue Code that authorizes them.
Gilbertson liked the app so much, he’s joined the startup’s seed round through the Southern California branch of the Band of Angels venture fund, which he chairs. “I stated as a customer and ended up an investor,” says Gilbertson, 33.
U-Nest has raised $2 million from a group of investors including The Artemis Fund, Draper Dragon, Unlock Ventures, Vested Ventures and Band of Angels. This brings the company's total funding to date to $2.45 million, including a previously raised round from friends and family.
The startup launched its pilot program in October 2018 and claims it saves parents hours of research and simplifies the process of saving for college.
Parents can start an account in minutes and pay $3 a month to maintain it, less expensive than the cost of financial advisers, founder and CEO Ksenia Yudina says. After parents enter the child’s age and when the money for college will be needed, the app tracks progress toward reaching that savings goal.
Parents must invest a minimum of $25 a month, and can contribute up to $15,000 per parent to keep the savings tax free. The app meets bank-level security standards, according to the company.
The latest round of investment will go toward building an Android version of the App (which is currently only available for iPhone), and adding new features, including a “gifting” one that lets others submit funds into the 529 plan, says Yudina. U-Nest is only available for iPhone users for now.
The company manages a few hundred accounts and allocates investments in the portfolios tailored to the child’s age and time to attend college. According to company filings with the U.S. Securities and Exchange Commission, it had 130 clients and $84,000 under management as of July.
U-Nest invests in the CollegeBound Rhode Island 529 plan managed by Invesco, but parents can use the plan toward any college in the U.S., Yudina says.
College Costs Rise
Before U-Nest, Yudina worked as a vice president at Capital Group/American Funds, a 529 plan provider. Originally from Khabarovsk, Russia, she moved to the U.S. for college and eventually graduated from University of California, Los Angeles, with an MBA and $180,000 in debt. This fueled her interest in educating others on 529 plans. “It’s still a burden,” says Yudina, 33. “I’m still paying it.”
Savings in 529 plans in the U.S. have gone from $133.4 billion in 2009 to $352.4 billion as of June 30, according to data from the College Savings Plan Network, part of the National Association of State Treasurers.
The total number of accounts has risen from 10.1 million in 2009 to 14 million accounts as of June 30, with the average account size up from about $13,000 in 2009 to $25,000 as of June 30. The U.S. is home to about 74 million children, about 24 million age 5 and younger. The earlier parents open a savings plan, the better, says Yudina.
According to College Board data, the cost of college keeps rising. Between the 2008-2009 school year and 2018-2019 school year, published in-state tuition and fees at public four-year colleges increased at an average rate of 3.1 percent per year beyond inflation.
From the 2013-2014 academic year, the average published price for tuition and fees at public four-year colleges rose by seven percent, or $640, to $10,230 in the 2018-2019 academic year.
Yudina says the high barriers to becoming a company like U-Nest should stave off competition, and she says that 529 plans have won over regulators. All 50 states and Washington, D.C., sponsor at least one type of 529 plan. The 2017 Tax Cuts and Jobs Act, signed by President Donald Trump, extended use of 529 plans toward tuition for private K-12 schools.
In the future, Yudina has an eye on expansion overseas, as well as expanding into other financial plans, including insurance.