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Should You Gamble on a Prepaid College Tuition Plan?

May 8, 2016

Several states offer ways to pay at present for college credits later. But there can be huge drawbacks.

Pay for tomorrow's tuition at today's prices? That seems like a good deal-- and it may be, however only under certain circumstances.

Here's what you need to understand about prepaid 529 programs.

How Do They Work?


In about a dozen states you can basically purchase academic credits today, at existing prices or with an added premium, for future use at in-state institutions. There's even one program, at privatecollege529.com, that lets you prepay for about 300 nonpublic schools.

The Rules: 


You usually can invest only in your own state, states Joe Hurley, Writer at Savingforcollege.com, which has a list of plans' with all the financial details. And while there are bailout alternatives if your kid wishes to study elsewhere, you may get back just your own investment plus inflation.

Who Can Benefit?


Parents who are fairly certain that their kids will wind up at State U ought to do great. Florida and Maryland residents likewise get generous cashouts if your kid heads somewhere else, letting you walk away with about what you would have put in on in-state tuition.

When Should I Pass It Up?


For most out-of-staters, naturally, pre-paid plans are a nonstarter. And if you believe your child is going to be aiming for Yale rather than the local public university, avoid. A traditional 529 is a safer investment bet.

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