NCPA - National Center for Policy Analysis

States Cut Back on Prepaid College-Savings Plans

February 16, 2011

Even as college costs keep rising and recession-scarred families scramble for aid, several cash-strapped states have abandoned or scaled down one of the most popular college-savings options: prepaid tuition credits, says the Wall Street Journal.

The plans allow families to purchase university credits at today's prices and use them at an indeterminate time in the future, typically for a public university in that state.

  • The plans work like annuity contracts, essentially allowing you to pay for up to four years of college at today's cost, though most plans now charge a premium.
  • Washington state's program, for instance, charges $11,700 for a year of future tuition, even though tuition at the University of Washington in Seattle will cost $8,592 this year.
  • As in standard 529 plans, assets rise free of federal taxes -- and often state taxes -- if they are used for higher education.

Source: Jilian Mincerzuma, "Prepaid College-Savings Plans Take another Hit," Wall Street Journal, February 12, 2011.

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