There is no denying that planning for college is a very stressful process for most families. While there are many challenges facing students, parents also have their own share of difficulties when it comes to preparing for college. Parents often cover the majority of costs for their children. One of the decisions families in must consider is whether or not they want to use prepaid college plans. Prepaid college plans in have many benefits, but they are not the right choice for all families. Something important to note about prepaid college plans is that every state runs its program in different ways, so families in must ensure they are researching plans specifically in their state. Review more information regarding the benefits of prepaid college plans in the sections below:
- What are prepaid college plans?
- Advantages of Prepaid College Plans
- Disadvantages of Prepaid College Plans
What are prepaid college plans?
Prepaid college plans are managed both by the state and a group of private colleges. In order to be eligible for a prepaid college plan, the applicants must live within the state. Prepaid college plans are meant to help parents who are worried about the ination of college expenses. Instead of waiting to pay for more expensive college costs once their child is old enough to attend college, parents pay for the costs of college tuition in the present. Once their child is old enough to attend college, they may attend classes without having to pay whatever the costs are for that year.
Prepaid college plans come in two different forms: prepaid unit plans and contract plans. The prepaid unit plans sell a fixed percentage of college tuition. Instead of paying for the entirety of the tuition costs, parents only pay a percentage of the costs, and then must pay for the difference when their child attends college. Parents have total control over when they purchase units, and how many units they purchase. It is possible that, over time, parents purchase 100 percent of the tuition. Contract plans sell a full year’s worth of tuition. Contract plans are determined by the age of the child, as well as how many years the parent wants to cover. Like with prepaid college plans, parents do not have to purchase all the years of tuition in one sitting.
Advantages of Prepaid College Plans
One of the biggest advantages of a prepaid college plan is peace of mind for both the parents and their children. Parents do not have to worry about juggling as many college costs for their child after high school, and they also do not have to worry about the continued rise of educational costs. While prepaid college plans are not technically considered investments, there are usually some similar tax benefits available to the account owners.
Another advantage of prepaid college plans is how much freedom parents have with picking their plans. Parents can slowly build up the plans over time. Prepaid college plans also have default guarantees, which allow parents to withdraw a portion of the money in case of emergencies. In most situations, students pick a school within their home state. Students attending college in their own state typically spend less money than students who go abroad, plus it is much easier for these students to stay in touch with their families.
Disadvantages of Prepaid College Plans
For some families, the advantage of attending a college in the state may also be a disadvantage. While has many great universities, some students want to attend specialty schools outside of the state. There is a process in place for students that end up attending school out of state, but parents are only able to get a portion of their money back when this happens, and it can also be a very involved process.
There is also the risk that parents do not end up saving money. While the costs of college have been on a steady incline as of late, there is no saying what will happen in the future. Even if the general costs of college do not decrease, there may be new grants and programs which significantly reduce the costs. While prepaid college plans offer a fair amount of freedom, having so many options also makes the plans confusing for parents to follow.