A prepaid tuition plan allows you to pay a child's tuition and fees in advance, with the intent of locking in today's prices. They differ from the 529 savings plan by allowing you to pre-purchase tuition based on today's rates. This way, you can pay for college now without the worry of rising tuition costs.
We're not saying that prepaid tuition plans are all you need to save for college. In fact, they can be much more restrictive than 529 savings plans in that they are designed to pay only tuition and certain fees at specific colleges and universities.
However, there are some good reasons to consider a 529 prepaid tuition plan. Here are three:
- Peace of mind that the money will be there when they need it. With a prepaid plan that is backed by the full faith and credit of the State, your benefit is guaranteed.
- You'll pay less for college tuition. Yes, you read that correctly. With a 529 prepaid tuition plan, you'll pay less because you're buying tuition for the future at today's prices. For example, let's say you spend $10,000 to buy one year's worth of tuition at today's prices. Assuming that your child won't use it for 10 years and that the tuition is valued at $20,000 by the time he/she enrolls, you could save $10,000!
- No hardcore budgeting required. How many parents can say that they know what the cost of college will be for their child five or 10 years from now? Being able to buy the tuition you need for tomorrow at today's prices allows you to worry a lot less over budgeting for unknown future tuition costs.
Prepaid plans can be a good option for many families, but like any type of investment, you need to do your research to see if it's right for you.
Note: Prepaid Tuition plans rely on actuarial assumptions and as a result, may limit returns, close to new investors, or default on their obligations. Not all prepaid tuition plans are guaranteed.