529 Prepaid Tuition Plans
Prepaid tuition plans are one of the two kinds of 529 plans. These plans allow you to pay for future college tuition credits at today’s prices.
The value of the credits is guaranteed by the state to
keep pace with the annual increase of tuition at public colleges, currently between 5 and 8 percent. However, the cost of these credits increases each year to keep pace with tuition.
Purchasing credits while the child has several years before college can represent a significant savings.
Advantages of Prepaid Tuition Plans:
- Your investment is guaranteed by the state government to keep pace with annual increases of tuition rates at public colleges.
- Prepaid plans are considered a low risk investment so your investment will not lose value.
- The annual rate of increase for a prepaid tuition plan is about 7%, which is higher than most savings accounts or CDs.
Disadvantages of Prepaid Tuition Plans:
- Typically, these plans are only for tuition and fees and can not be used for room, board or other expenses.
- Participation in the plan can reduce a student’s eligibility for need based financial aid.
- Prepaid tuition plans are a conservative investment and may be outperformed by other 529 plans such as college savings plans.
