Prepaid College Savings Plans – Non Credit Card
Prepaid College Savings Plans
There are two different kinds of savings plans specifically designed for saving for a college education: the tax-advantaged 529 plan and pre-paid tuition plans. Pre-paid tuition plans can be arranged with an individual college; the plan works much like putting an education in layaway. You pay in advance credit hour by credit hour, so that by the time your child gets to the college, much of their education is already paid for. Another way that pre-paid plans work is that a group of colleges combine to sponsor a plan, so that pre-paid fees go into a common fund. Money invested in that fund can then be used for tuition for any of the member universities.
One important advantage to these plans is that you get locked-in tuition rates. This is a significant benefit in an age when tuition costs keep rising. A downside is that these plans only cover tuition and required fees, and do not apply to room and board or optional fees or programs. However, more and more plans are offered that have parallel accounts that can be applied to room and board.
When you enter into a pre-paid tuition arrangement, you set up a plan with the institution or group to pay installments based on the age of the prospective students and how many years of tuition you want to buy. Most of these plans only apply to future students who are now children; adults or teens are not eligible to participate. There are also a few limited enrollment times spread throughout the year, so you may have to wait until those times to begin your pre-paid plan.
There are some restrictions to pre-paid tuition plans. In most cases they are sponsored by state governments, so you have to be a resident of the state where the plan takes effect. State governments guarantee your funds, so they cannot be lost, even the university falls on hard times or goes bankrupt. Obviously using one of these plans significantly limits your choice in school selection, so they should be entered into with caution. You should be very certain that your investment will benefit your child’s future rather than limit it.
Pre-paid plans are considered part of parental assets when figuring a student’s eligibility for other financial aid. This may limit the help your child can receive to meet other college expenses.
Student credit cards.com @ July 22, 2008