Prepaid college tuition plans are no longer the surefire solution to runaway tuition costs they once seemed. The mostly state-sponsored plans were designed as a way to save for college by locking in at least a portion of future tuition at today's prices.
Spring time means graduation. Graduation may mean college. What's the plan?
USA Today published an article a while back worth repeating in case you missed it. Titled "Prepaid college tuition plans: Know this before you invest," the article explored the notion of prepaid college tuition plans whereby you pay now to minimize the rising cost of tuition. The article states that tuition has increased an average 7% annually since 1990 and continues to climb. However, what has reversed is both the endorsement of experts regarding these plans and ability of states to guarantee the funds.
A prepaid tuition plan allows families to buy future tuition credits at current prices; if you buy shares worth one semester's tuition when your child is young, those shares should always be worth one semester's tuition regardless of how much rates rise.
Many states have ended their plans or changed them as their budget deficits grew. Facing shortfalls, some states bumped up prices by charging larger premiums above the cost of current tuition. And some available plans don't offer guarantees.
College financing experts quoted in the article tell parents and students to review the specifics of their state's plan carefully. But advocates of the tuition plans call them "peace of mind programs" and say they still offer that comfort.
Call your financial planner to see if this or another strategy such as a 529 plan is recommended for your specific circumstances.
Reference: USA Today (June 8, 2012) "Prepaid college tuition plans: Know this before you invest"