Prepaid 529 plans, where you purchase tomorrow’s tuition at today’s prices, are one of the ways to do so. And you don’t need a lot of cash to start.
“We wanted the security of knowing we could afford at least two years of college for each of our children,” says Katie G., a Midwestern mom, who contributed funds into Private College 529 Plan accounts for each of her children. “With guaranteed future tuition rates, we knew we could do so if we stuck to our savings plan of using bonuses and extra money when available.”
Katie’s children were between the ages of 8 and 12 at the time they started saving towards their higher education tuition costs and it definitely paid off for her family and provided them with peace of mind.
Here’s what you need to know when considering saving in a Prepaid Tuition Plan:
How Prepaid Tuition Plans Work
There are currently around a dozen states that are accepting new accounts for their prepaid plans. State plans generally offer differently priced tiers where you can purchase tuition at a community college or four-year state university.
Another option is Private College 529 Plan, a prepaid tuition plan where your contributions purchase tuition at any of their nearly 300 participating private colleges and universities across the nation.
The main idea behind prepaid tuition plans is that you’re buying tuition for the future at today’s prices, whether you are buying $100 or $10,000 of future tuition. If tuition that you bought at $10,000 is worth $15,000 when you use it, you just saved $5,000 in tuition.
Both the state prepaid plans and Private College 529 Plan provide you with options to choose from regardless of what state you live in.
If you don’t use the state’s prepaid plan for the kind of school you purchased, state plans will often give you the dollar value of the tuition at the school you selected to use towards another school.
For instance, if the state school in the category you purchased tuition for was worth $12,000 at the time of redemption, you would likely have $12,000 you could use at a private school or out-of-state school.
With Private College 529 Plan you can use your prepaid tuition at any of their nearly 300 participating schools as long as your child is admitted and enrolls at one of them. The best part is you don’t have to commit to a particular school within the list. You can use your prepaid tuition with any of the member schools.
For any plan, enrollment is easy and just takes a few minutes online. State plans may have enrollment windows. However, Private College 529 Plan offers year round enrollment.
How to Get a Better Prepaid Tuition Deal
Tuition prices can go up annually.
For instance, participating colleges in Private College 529 update their tuition rates for the upcoming academic year each July 1st.
So your account contributions made on or before June 30th purchase tuition at this year’s rates (2024) compared to waiting until July or after when you’d be buying tuition at the next year’s rates (2025).
This is something to consider especially if you know your student will attend one of Private College 529 Plan’s participating schools, and you also have money saved elsewhere. Transferring those savings into a Private College 529 account on or before June 30th is another way to purchase tuition at this 2024 prices before rates change.
Why You Should Save in a Prepaid Plan
Prepaid 529 plans allow you to save money on the cost of college.
Below is an example of how you can save with Private College 529 Plan.
Let’s say you have a three-year-old child. You open an account today with $10,000 (you don’t have to contribute that much) which equals one semester at College A, where tuition is $20,000.
If tuition rises four percent a year for 15 years, College A’s tuition would increase from $10,000 per semester to over $18,000 by the time your child enrolls in college. By prepaying through Private College 529, you would save $8,000 dollars for that semester. Tax-free.
Prepaid Plan Flexibility
Just like any 529 plan, with prepaid plans, the account owner controls the assets in the account, and can rename a beneficiary, which gives you the option to use prepaid tuition for other family members.
Prepaid plans also partner well with traditional 529 savings plans. For instance, you may have purchased a prepaid plan to cover tuition and mandatory fees. While the prepaid 529 plan can help cover those costs, you can use your 529 savings plan to cover room and board, books and supplies and a whole host of other qualified higher education expenses.
Prepaid plans allow you to buy tomorrow’s tuition today, but what if tomorrow is next year for high school seniors?
Vesting periods (or how far in advance you have to purchase tuition before you can use it) range from 2 years to 4 years.
Thus, you can prepay tuition at today’s rates for a child’s junior and/or senior years of college. Katie G. stopped saving for her youngest child recently, using this strategy because graduation will come before the next vesting period is over and she has already saved enough for expected college education costs.
Biggest Myth About Prepaid Plans
One of the biggest misconceptions about prepaid plans is that you have to prepay all four years of college in advance in order to use them. This simply isn’t true. The truth is, most families don’t save 100% of tuition costs, but the money they do save helps defray the need for loans (money that has to be paid back with interest).
“Prepaid plans aren’t just for families who can afford to pay for college simply by writing a check,” says Bob Cole, President of Private College 529 Plan. “We have families who save diligently and regularly for many years and are able to guarantee thousands of dollars in tuition.”
Over the course of approximately 10 years, Katie G. and her husband were able to pay for a lot more than they expected which allowed them to send each of their children to college without the need for student loan borrowing. They even had their government chip in. For the years they were able to max out their states’ tax deduction, they paid $720 less per year in taxes.
That is a great accomplishment that would not have been possible without sticking to their 529 investing strategy and educating themselves on the benefits of leveraging prepaid 529 plans.
- You’ve checked the CSPN comparison tool, a tool that lists all 529 plans, to see if you have a state plan for prepaid tuition you qualify for.
- You’ve looked over the college list on Private College 529 Plan’s website to see if your student’s potential schools are on the list.
- You’ve checked on enrollment dates if choosing a state plan.
- You’ve marked your calendar, if considering choosing Private College 529 Plan, to purchase tuition at this year’s tuition rate before June 30th when tuition rates update to the upcoming academic year.
- You’re paying attention to vesting time periods, so you can prepay final years of college if your student is a high school junior or senior who has already chosen a college option.
This article is sponsored by Private College 529 Plan, which provides families with an option to buy tomorrow’s tuition at today’s prices – guaranteed. With Private College 529, you can give your children the education they deserve at a price you can afford, potentially saving thousands of dollars in the process. With nearly 300 participating colleges and universities, there’s a private college that’s right for nearly every budding scholar.
Use R2C Insights to help find merit aid and schools that fit the criteria most important to your student. You’ll not only save precious time, but your student will avoid the heartache of applying to schools they aren’t likely to get into or can’t afford to attend.
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