While many college students work to pay tuition, some two-year-olds already have their college tuition funded.
They are enrolled in Independent Plan 529, one of the first prepaid tuition programs in the country. The plan is run by the Teachers Insurance and Annuity Association College Retirement Equity Fund (TIAA-CREF).
Plan 529 allows contributors to save for private education by paying eventual tuition costs at lower than current prices.
Each of the 200 schools participating in the program is required to give contributors a discount which will never be less than 0.5 percent of the current tuition.
Parents and other contributors have the option of prepaying the full cost of one year’s tuition in an undergraduate program or paying a fixed monthly amount.
TIAA-CREF cited one of their goals as helping to “increase affordability and access to private higher education by offering a tuition prepayment program with the security of a guarantee against tuition inflation and the scope and flexibility.”
Contributors also owe no income tax on the increase in the value of the tuition.
For $25, parents can get an account via a Certificate Discount, provided there are at least $500 worth of contributions to the fund within two years.
The maximum contribution limit is equivalent to five years’ worth of tuition at the most expensive participating institution.
Also, parents do not have to choose a school for their child right away. If enough money is saved, the student can apply to any Plan 529-participating school.
Furthermore, colleges that withdraw from Plan 529 would still be obligated to honor all certificates that were purchased prior to the date of its withdrawal.
Plan 529 has significant drawbacks as well. The most obvious is the limitation of choices; not everyone wants to go to a private college or university.
There is no guarantee the student will get into any of the schools participating in the program. Even if the student is accepted, Plan 529 only covers undergraduate tuition and mandatory fees.
Room, board and graduate school all still have to be paid for at the current price. Withdrawals or refunds from the program are acceptable but subject to income tax.
Plan 529 is aimed toward the upper-middle class and the wealthy. A certificate must be purchased at least three years before it can be used, meaning that contributors must have enough money to be able to provide for their child or grandchild’s tuition years in advance.
Then, the percentage of future tuition purchased varies for each school depending on its current tuition price and CD rate.
I decided to utilize the contributions and purchases section of the plan’s Web site, www.Independent529Plan.com.
I learned that my $100 contributing will purchase a full 0.0040 years at Princeton University in 2020 and I will have to contribute $24,121 in order to purchase tuition for that year.
While Plan 529 is a good idea, it ignores students who are smart enough to get into private universities, but whose families lack the resources necessary to make monthly or annual contributions.
The reality of these families is the old-fashioned one, paying tuition at growing prices and paying back loans for the next 30 years.
Stephanie Young can be reached at Sunbeam@temple.edu