NCPA - National Center for Policy Analysis

State-Run Tuition Savings Plans A Major Success

December 17, 1999

State-run college tuition plans are piling up billions of dollars to help parents pay tuition costs, according to a report from the Kentucky-based College Saving Plan Network. The plans offer professional money management; state and federal taxes on earnings are deferred until withdrawn; and many plans offer additional state incentives. According to the report:

  • Forty state plans now manage $7.1 billion in college savings.
  • That figure has grown by 40 percent just since June.
  • Nearly 1.2 million people are using the plans.

State tuition plans are of two types. Prepaid plans let an investor (typically a parent or grandparent) lock in public university tuition rates by paying now for a future education. Savings plans are tax-deferred investments. If the money isn't spent on tuition, the investor loses the tax break and pays a penalty. Right now savings plans have shown the most growth. Arizona, California, Colorado, Maine, Missouri and Virginia have opened savings plans since August, with fourteen more states ready to join them. Competition among states has forced them to add extra wrinkles to their programs in order to draw investor interest.

Source: Thomas A. Fogarty, "'Breakthrough' College Savings Plans Take Off," USA Today, December 17, 1999.


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