Prepaid College Tuition - 529 Savings Plan

Hate Variable Rates? Prepaid College Tuition Is Your Solution.

For many parents, sending their child to college means they will save and invest a lot of money before they even started first grade. Some of us though not like to invest in plans where there are interest rates and variable ROI which is why there is an alternative called prepaid college tuition. You will learn what a prepaid tuition is and realize although it has many benefits, it may not be as beneficial as a college savings plan for some people. We will look at several benefits and inconveniences of this tuition plan. If you hate investing then you'll be happy to know that this plan might be a good idea for you.

Let's start with a simple definition, a prepaid college plan is sort of like an investment but there will be no growth nor losses. The money is basically a sitting duck. So why would you want to apply for prepaid college plan you wonder? Well the reason why you want to do this is because you are locking the tuition of your child's college education at the current price. this means your child can go to college in 10 years but the price you'll pay is the price of the actual college costs and not the one in 10 years. Locking down your child's college fees like this may seem like a good idea but you will definitely be missing out on a college savings plan.

Since there is no growth on prepaid college accounts the money you invest will be worth less and less every year because of the inflation rate going up. That means you'll have to invest in new money every year in order to be able to compete with the inflation rate. If you do not do that then your child's prepaid account may not be enough to cover the fees when they go to college. But it's probably a lot cheaper to go with this type of solution than the college savings plan and here's why.

If you think about it statistics shows that college costs went up almost 40% in the last five years so you could be saving at least 40% on college costs if you invested five years earlier in a child's college education. If you plan your child higher education properly it can also protect you from the inflation rate. Another great advantage is whatever funds you need to retreat from the account will never be taxed as long as the funds are used for college purposes. Conservatively speaking this is a great solution but there are some minor inconveniences to it.

This plan is not as available as the college savings plan for example so some of you may not have access to a pre-paid plan in your area. the second problem is in order to have access to a prepaid college plan you need to have residency in the state that offers it. Since you have to be in the state in order to have access to it, you also need to attend college in that state to make sure that you have enough funds for the whole time your child will spend at college. There is a possibility to study outside of the state but if that happens you may not be guaranteed that the funds will cover your child's complete college education.

Having the possibility to choose among many college plans gives you a chance to make the right decision. The be prepaid college tuition is only an additional financial aid for those who need it. It's not and should not be a main investment method for sending your child to college. The best way to send a child's college is still by investing in college savings plans so that not only can you compete with the inflation rate but you can use the money for more than only education.