529 Prepaid Tuition Plans
What they are
Prepaid tuition plans protect you from skyrocketing college costs by charging you today's rates -- in small installments -- for an education later on. That means if you paid $10,000 for tuition in 2003 and the tuition grew to $15,000 in 2020, you wouldn't have to pay the $5,000 difference when your child entered college. You can sleep at night because your child's education at a public, in-state school is guaranteed to be paid. What's more, the plans will let you use the tuition at any in-state school, from selective universities to community colleges.
What you should know
Your peace of mind is expensive, warns Chany. Prepaid plans only help you keep pace with tuition inflation, which has historically grown at about 5 percent per year. Despite cyclical highs and lows, the stock market has grown 8 percent per year, on average, so you could miss out on some financial gain.
And if your child decides to forego State U. for an out-of-state or private school, you can still pay his tuition with the prepaid 529 money, but you'll have to pay the difference in tuition, which could amount to tens of thousands of dollars. A prepaid plan will also hurt your child's chances of getting financial aid for costs such as housing because it's in your child's name.
What you need to start
Monthly payments can be as low as $25, depending on the school's yearly tuition. Find out what's offered in your state by calling the National Association of State Treasurers at 877-277-6496 or visiting www.collegesavings.org.