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Understanding Risks of 529 College Savings and Prepaid Tuition Programs

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University Parent Media
3800 Araphaoe Ave.

Boulder, CO 80303
University Parent Media web site

Contact: Kirsten Lamb, 303-523-6917

PRESS RELEASE

Understanding Risks of 529 College Savings and Prepaid Tuition Programs

Boulder, COLO.  (April 4, 2011) – For parents looking into 529 college plans to pay for their students’ education, University Parent Media advises they consider the state’s financial position and understand wise investment practices.

“We’ve seen a trend in states across the country whose financial stance results in tuition increases, loss of scholarships and shaky 529 college plans that can’t cover tuition inflation,” Sarah Schupp, CEO of University Parent Media, said. “Parents who research all of their options to pay for college – and the risks of each option – can avoid unnecessary stress.”

College savings plans are tax-advantaged state-administered investment programs that allow investors to save money in an account with the earnings growing free from federal income tax and, when used to pay for qualified higher education expenses, may be withdrawn federal income tax-free.

Prepaid tuition programs allow investors to purchase future tuitions at today’s rate through a contract, which transfers the risk to the state, although states differ on how they guarantee the return on these upfront payments. Parents usually make up for tuition inflation through a premium.

The enrollment window for these programs varies state by state, and some states have recently closed their programs. Check out savingforcollege.com for information on each state.

According to University Parent Media, parents whose options do include 529 plans should consider the following tips to navigate the programs and invest or save wisely:

  1. Read the fine print. If the investments underperform, will the state guarantee to step in to keep up with tuition inflation?
  2. Understand the numbers. States like Illinois have raised tuition by an average of 10 percent over the last decade. Does the prepaid 529 plan look reasonable for your student’s enrollment year?
  3. Consider the investment. Does the plan offer a blend of mutual funds or investment opportunities from one company? Do you want a more conservative certificate of deposit? Talk to a financial adviser to understand the risk, fees and other associated costs.

For parents whose faith in 529 plans has diminished – or whose state doesn’t offer them – University Parent Media suggests these tips to save and pay for college:

  1. Diversify. Any plan, whether a 529 plan or not, that puts all eggs in one basket is a risk. Don’t expect to pay for your student’s education from one fund.
  2. Find private options. Look past government programs into local, regional and national private organizations that offer scholarships and grants for education.
  3. Budget and plan. Approach paying for college the old fashioned way, by starting early and creating a family budget that allows for monthly saving in a money market or high-yield savings account.