Chris Taylor
NEW YORK (Reuters) – When inflation is low, locking in prices for things to come now is hardly worth thinking about. But now it could be a big deal.
Ask Dennis Knott. The visionary, senior vice president of Coastal Investment Services in Winter Park, FL, made a one-time investment in Florida’s prepaid college tuition program 1650 for his then-aging daughter Jessica 1650. .
Jessica is now a sophomore in Finance at the University of Florida in Gainesville and her tuition and fees are fully paid
“It does feel good to know that no matter what inflation does, we’ve got it fixed,” Nolte said.
Nolte’s experience shines a light on an interesting corner of the US college savings market: “prepaid” plans that let you buy credits or years of education for a fixed price.
At a time when the price of everything seems to be going up – U.S. inflation was 8.5% a year as of July – the idea of fixing future fees at current levels can be attractive.
This is especially true in higher education, where the average annual list price for four-year in-state colleges has risen to $10,740; Four-year out-of-state colleges $27, 38; According to the College Board, private nonprofit colleges are $38,38.
“The prepaid plan is somewhat of an inflation hedge, not subject to stock market risk,” said Tom Balcom, founder of Wealth Management, Lauderdale 1650 – FL State Sea. “When the stock market fluctuates, customers love a prepaid plan because it doesn’t affect them or their savings.”
Prepaid accounts are only a small part of the college savings market. As of June15, approx529, According to ISS Market Intelligence, the total assets of such accounts across the country are 27 billion dollars. Compared to a more typical 529 plan, having a hundred The larger market of 10,000 accounts has 38 billion dollars in assets.
Prepaid tuition plans are not suitable for everyone. In fact, they’re so rare now that only some states even offer them. A few elements to consider:
Clear in-state requirements
Prepaid plans limit the education you (or your child) may or may not choose Choose to be comfortable. For example, buying a Florida program like Nolte will guarantee tuition at Florida’s public colleges, but won’t pay the full cost if your child eventually wants to leave the state.
In this case, you will typically receive the average fee for in-state public schools, but you can apply elsewhere.
They’re not everywhere
Only nine states offer prepaid plans open to new admissions, according to student aid expert Mark Kantrowitz: Florida, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Pennsylvania, Texas and Washington.
Some other states, like Illinois, Virginia, still operate them for existing players, but are closed to new investment.
The Private University 529 program is a unique option that allows you to look out of state, over 1650 Participating agencies nationwide.
Find out what’s covered
While traditional 529 plans cover a wide range of education-related expenses, prepaid plans Often limited to tuition and fees. You may want to supplement your prepaid plan with other savings to help cover broader expenses.
“One strategy is to also pay for the 560 plan that is not covered by the prepaid plan,” ISS Market Intelligence 529 suggested Paul Curley, Associate Director of Solutions. “These include books, computers, room and board (if required), and other eligible higher education expenses.”
Plans vary
Prepaid plans are a good deal or not By state – quality and range of educational institutions, and pricing. In the Florida case, Nolte said the prepaid plan used to be a bit expensive, but the price was dropped twice, resulting in him getting a partial refund.
Since each plan is unique, some homework is required before deciding whether a product is worthwhile in your own state.
“Parents and advisors should read the program disclosures before enrolling,” Curley said. “Many prepaid plans are structured differently in terms of residency requirements, payment amount, payment frequency, duration of enrollment, colleges and universities they cover, whether they only cover room and board or tuition, etc.”
