Prepaid Tuition & Savings Plans
If you want to pay today's tuition rates though your child won’t be in college for at least a few years, look at the many types of prepaid tuition programs. In most cases, participants pay for their child’s college tuition from the day they are born until the day they enroll. Participants pay a fixed price for tuition based on the rates at that time while tuition rates increase for non-participants.
Although each state that features a Prepaid Tuition Plan, each state has different guidelines. There are usually two ways to save:
Prepaid unit plans allow buyers to purchase a fixed percentage of tuition. Plan participants pay the same price for each unit and the price of a unit increases each year.
Contract plans allow the parents to purchase a specific number of year’s tuition. The purchase price depends on the child’s age, if there is a lump sum payment involved, or if there are monthly installments.
The advantage of a Contract Plan is that it offers lower rates for younger children because the state holds onto your money longer.
Check your state's rules & regulations for the plan you are considering.
For a list of telephone numbers, and links to the Web pages of operating programs, click here. If your state is not listed, it is because we were unable to find information about that state's program. If you have information about a state program contact us with that information. For more information, please contact the individual programs.
Prepaid Tuition Plan Benefits
- Locks in tuition at current in-state university rates, regardless if when your child will be attending college
- It is an enforced savings plan
- Prepaid Tuition Programs are often exempt from state and local taxes. Federal taxes are deferred and are not paid until the money is used. The beneficiary pays federal taxes, but because student income is lower than adults’ the tax rate is lower
- Family and friends can purchase Prepaid Tuition Units
- Most states allow lump sum payments or monthly installments
- In certain states, prepaid tuition can be used to cover other expenses such as fees, room and board, or books and supplies
- The program is beneficial to families who do not qualify for need based financial aid
- A Prepaid Tuition Program does NOT guarantee admission into college
- Saving for college with a Prepaid Tuition Program negatively effects federal aid
- In most states, prepaid tuition is set to public, state universities, not private
- If the student does not to attend college, many states will only return the original contribution, reducing or eliminating compounded interest
Here are good questions to ask:
- What schools participate in the plan?
- What schools participate in the plan?
- What if your child chooses a private university or an out-of-state public university instead of your state school?
- What if your child is not accepted at the state university you've been saving for?
- What happens to the money if your child doesn't go to college? Can shares be transferred to other kids in the family?
- What happens if your child is involved in an accident and can't attend college?
- How much can you invest? Is there a minimum? A maximum?
- What fees will you have to pay?
- What are the payment options? Is a lump sum required or can you make monthly contributions?
- Taxes- what is the taxable status for state & local taxes? How about federal? What's the tax rate when the money is withdrawn for use?
- What about tax deductions? Are the contributions tax deductible?
- Are there any residency requirements?
- Age requirements?
- What happens if the family moves from the state in which the student had planned to attend college, but the student does not?
- Exactly what expenses are covered? Just tuition? What about room & board? Books & fees? Travel expenses back and forth to school?
- Is the money guaranteed by the state?
- Can you make automatic payroll deduction payments?
- Can other members of the family or friends also make payments? Are contributions limited to parents?
- What if you want to withdraw form the plan? Are there cancellation penalties?
Savings Plan Trusts
Savings plan trusts are investment accounts where parents cultivate their child's education funds. Participants can make deposits of as little as $25 and programs usually guarantee a minimum rate of return. An advantage to this type of funding is the freedom to apply the savings to any college or university.
- Small deposits are accepted, as little as $25 per month.
- The funds can be used at any accredited U.S. college or university.
- The Savings Plan may offer a higher return on the investment then a Prepaid Tuition Program.
- Savings Plan Trusts are federal tax deferred until the funds are used.
- Funds are taxed at the beneficiary rate, which is lower than adult rates.
- Many states offer tax benefits.
A Savings Plan Trust, unlike a Prepaid Tuition Program, does not guarantee the current tuition rate regardless of a rise in those rates.
Some states have residency requirements. These states often require that either the participant or the beneficiary be a state resident when the student is first enrolled in the program. The states that do not have such a requirement are open to non-resident investors.
Prepaid Tuition Programs
|State||Phone Number||Mailing/Web Address|
Office of the State Treasurer Rpp, S-106,
Alabama State Capitol
600 Dexter Avenue
Montgomery, AL 36130
Colorado Prepaid Tuition
1981 Black Street, Suite 201
Denver, CO 80202
PO Box 150499
Hartford, CT 06115-0499
|District of Columbia||888.463.4723||http://www.prepaid.usmd.edu/|
The Florida Prepaid College Tuition Program
1801 Hermitage Boulevard, Suite 210
Tallahassee, Florida 32308
PO Box 19292
Springfield, IL 62794-9292
College Savings Iowa
State Capitol, Room 114
Des Moines, IA 50319
Maryland Prepaid College Trust
PO Box 17412
Baltimore, MD 21297-1412
125 Summer Street
Boston, MA 02110
Prepaid Affordable College Tuition Program (MPACT)
Nevada Prepaid Tuition Program
555 E Washington Ave # 4300
Las Vegas, NV 89101-1071
North Carolina State Education Assistance Authority
PO Box 13663
Research Triangle Park, NC 27709
State of Tennessee Treasury Department
PO Box 198786
Nashville, TN 37219-8786
Texas Comptroller of Public Accounts
PO Box 13407
Austin, TX 78711-3528
Utah Educational Savings Plan Trust
355 W. North Temple 3 Triad, Suite 550
Salt Lake City, UT 84180
Virginia 529 College Savings Plan
Wisconsin Department of Administration
PO Box 7864
Madison, WI 53707-7864
Last Edited: November 2015
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