Is Prepaid Tuition for You?

Is Prepaid Tuition for You?

The future of financial aid is still somewhat uncertain, but the fact that

tuition will keep rising is almost guaranteed. If you still have time before your child is ready for college, you may be considering saving now. For those who wish to save, there are two types of 529 savings

accounts that provide tax advantages. One of these, prepaid tuition, allows you to lock in today’s tuition rates. Is prepaid tuition the right choice for your family? That depends upon a number of factors.

What Is Prepaid Tuition?

Prepaid tuition programs are typically state sponsored and allow you

to buy tuition at today’s rates. You can then redeem the tuition credits when your child is ready for college. The state covers any increases in tuition from the time you purchase credits until you redeem them.

The downside of this plan is that states are facing increasing budget cuts and may not be able to fulfill any guarantees they make. College Planning Authority founder, Kevin Campbell, says that this makes prepaid tuition a risky prospect for many. Colorado has already closed

prepaid tuition to new enrollees and Alabama has frozen payouts at the tuition costs of 2010. Other states have made similar changes or have ended the program altogether.

Other Considerations

Even if your program remains fully funded, there are limits involved in these plans. Some only pay if students attend in-state public colleges. Plans that offer saving through prepaid tuition at private colleges only
If you are an extremely loyal alumnus who wants your child to attend your alma mater, prepaid tuition could be a good idea, according to Robert Weinerman of College Coach. He says that students who are determined to attend one particular college can get great savings by using prepaid tuition. Mark Kantrowitz, financial aid expert, also says that prepaid tuition can be a convenient solution in a divorce agreement that includes a college fund stipulation. apply at 270 colleges at this time.

 

Another thing for many to consider is the extremely high interest rates involved in some prepaid tuition plans. If you are unable to put all the money down up front, this can be an extremely expensive way to try to save for college.

The Verdict

Unless you are in one of the special circumstances listed above, you may be better served by using a 529 college savings plan. These plans allow you to invest your money and will yield the largest earnings if you start saving while your child is young.

 

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