Prepaid tuition programs are primarily for students who plan to go to an in-state college or university and only cover the cost of tuition. FinancialAidFinder - All rights reserved. They allow families to pay for college tuition at current rates, even if the student doesn't attend college for years. A prepaid tuition program allows donors to provide all or part of a student's tuition for college education based on today's costs for future tuition. As with any investment vehicle, there are both advantages and disadvantages to putting your money into a prepaid tuition program. Prepaid tuition programs are only offered in 12 states and only allow beneficiaries to attend in-state institutions. A prepaid tuition plan allows you to "lock in" tuition and mandatory fee amounts today that will cover the cost of tuition and mandatory fees when your child goes to college. Prepaid tuition plans allow donors to provide all or part of the amount of tuition for college education. A Coverdell Education Savings Account is a tax-deferred trust that assists families with educational expenses. A prepaid tuition program may be used to pay for future college tuition at any of the sponsoring state's eligible colleges or universities—or provide a proportional payment to private or out-of-state institutions. These include white papers, government data, original reporting, and interviews with industry experts. The amount paid is guaranteed to grow at the same rate as college tuition, regardless of its rate of growth over time. (Only two states allow non-residents to invest in their prepaid plans… The offers that appear in this table are from partnerships from which Investopedia receives compensation. As your question indicates, prepaid plans are linked to a specific state’s public schools. How Much Can a Student Win From Scholarships? Make sure you understand exactly what education expenses your prepaid tuition plan covers, as well as the tuition equivalent you'll receive if your child attends a private or out-of-state college. Most prepaid plans are guaranteed by the state in which they're administered, so plan holders can be sure their investment will keep up with inflation. Other states that once offered prepaid tuition plans continue to honor their obligations to past enrollees. 2020. If they want to go to another school out of state, you can get your money back, but you lose out on any of the growth you've earned. Essentially, you're lending your money to the state's plan in return for the locked-in tuition rate. The program does this by pooling and investing the plan's funds, aiming to make enough money to exceed the pace of rising state college tuition. Because the U.Plan is such a unique way to save for college, I took a deeper look at how it works to help understand the specifics of saving this way.

The Setting Up Every Community for Retirement Enhancement Act (SECURE) further expanded these rules after it was signed into law in December 2019. They can also make tax-free withdrawals to pay for tuition and related expenses for a beneficiary's apprenticeship program. Virginia closed its Prepaid529 program to new enrollment as of May 1, 2019, but the state reports on its website that it is developing a "new similar program.". As 529 plans, both savings plans and prepaid tuition plans offer the same significant federal tax advantages.

Both are tax-advantaged programs that allow an account holder to save for a beneficiary's education expenses by choosing a suitable investment portfolio. This plan's predecessor, the Texas Guaranteed Tuition Plan—formerly the Texas Tomorrow Fund—is closed to new enrollment. Private College 529 Plan. With the latter, plan holders can pay for education-related expenses including books, materials, and other fees, and, in some cases, room and board. Tuition insurance covers the financial losses associated with a college student dropping out before completing their degree. Since we purchased our plan before 2007 (give or take a year), UF can't charge us the hefty Tuition Differential Fee.

Prepaid tuition plans allow plan holders to prepay for tuition costs at qualified schools at today's rates. While most of the plans do allow funds to be used for out-of-state college tuition, there is often an accompanying penalty and the plan may not cover the full cost.. But these plans are also guaranteed by the financial backing power of each state. Note that these plans vary in terms of their guarantees, residency requirements, and other details. What are the fees and expenses with each type of plan? Funds in each type of plan grow tax deferred, and withdrawals from either plan used for the beneficiary's qualified education expenses are completely income tax free at the federal level. The beneficiary must be no more than 15 years old when the account is opened.

Although they're a great way to hedge against the cost of rising tuition, there are actually very few states that have prepaid tuition programs in place. The other kind is the college savings plan.

College savings 529 plans are also run by the states, but the money in them can be used for any college in any state. Parents and grandparents can now use the plans to pay for a beneficiary's annual tuition for K to 12 education at public, private, or religious schools. Prepaid tuition plans aren't the only ways for parents to save. Because the plan isn't run by any particular state and by the schools themselves, anyone can invest. U.S. Securities & Exchange Commission. What are the fees and expenses associated with each type of plan? Your later withdrawals can also be tax-free as long as the money goes toward paying tuition or paying off a student loan. Which States Offer Prepaid Tuition Plans? Accessed June 3, 2020. A prepaid tuition program is a type of 529 college savings plan that allows donors to provide all or part of a student's tuition for college or university. While 22 states used to offer them, that number has dwindled to just 11 as of 2020—and two of those states aren't currently accepting new enrollees, pending changes to their plans. Here's a rundown of which prepaid tuition plans exist, where you can still find them, and whether they may be a good choice for you. "What you need to know about 529 education savings plans." A prepaid tuition plan is a safe alternative to traditional college savings plans, and has the potential to save you thousands on college tuition. A Coverdell Education Savings Account is a tax-deferred trust that assists families with educational expenses. Tuition payments can be made either in a lump sum or through an approved installment plan. You may be eligible to take a state income tax deduction for the money you contribute to the plan.

Prepaid Tuition Program: One of the two major types of 529 plans. Prepaid Tuition Plans vs. College Savings Plans . Accessed June 3, 2020. Cost of attendance includes tuition, room and board, fees, and other expenses at a particular college and is used to calculate financial aid. Like 529 college savings plans, their earnings are tax-free if used to pay college tuition bills. A qualified higher education expense is a tax-reducing expense such as tuition and books paid to an eligible post-secondary institution. Edvisors.

A 529 plan is a tax-advantaged account that can be used to pay for qualified education costs, including college, K-12, and apprenticeship programs. A 529 college savings plan, which all 50 states and the District of Columbia offer, is more flexible than a prepaid tuition plan and can be used for a wider range of expenses. Currently closed to new enrollment pending legislative action..