College Prepaid Tuition Plans - what exactly are they?

What Are Prepaid College Tuition Plans ?

Given the costs of financing college studies, it is sometimes hard for students to pay for tuition. However, there are options for parents and family members to aid them in the process. Prepaid college tuition plans can be a viable solution that lets parents purchase today or start saving at current prices for the costs of public in-state college fees and other costs related to college studies.

These plans are also known as prepaid education arrangements and provide the family members with the possibility of purchasing (today and at current prices) the future education of their children or teenagers. As usual, these plans have advantages and disadvantages that need to be considered before deciding whether it is advisable to get into one of these programs or resort to other sources of college funds.

Benefits from Prepaid Tuition Plans

It is a low risk investment because as long as you know that your children will go to college, you can be sure that at that time you won't have to pay any more money and you will be able to dispose of all your income since the amounts set aside in the prepaid tuition plan will cover for all the costs of college tuition.
Besides, the amounts invested are guaranteed by the state governments that will ensure and assure that the money saved will produce enough revenue to at least match the increase of the costs of college tuition. That's why this investment implies such a low risk: because it has a government guarantee. Moreover, prepaid tuition plans revenues usually do much better than certificate of deposits and other low risk investments.

Disadvantages of College Prepaid Tuition Plans

The limitations of prepaid tuition plans have to be considered definitely a disadvantage unless you know for sure that your children will not want to attend to other colleges. The participation in these programs is limited to residents of the state where the colleges sit in and only for state universities, no private universities are included and other states' universities are also excluded. Therefore, the choices of the student will be limited to the public colleges that are located in that state.The low risk that was considered a benefit can also be considered a disadvantage because the earnings produced by these prepaid tuition plans are not that significant when compared to other less conservative investments.
Therefore, for those who have enough time and are less conservative investors, it is wise to search for other options first as prepaid tuition plan savings won't produce much revenue when compared with stocks, bonds, etc.

These tuition finance plans can also limit your ability to obtain financial aid from the government. When being considered for government grants and loans for college, the fact that you've participated in a prepaid tuition plan will show that you had saving capacity and will imply less advantageous terms on your subsidized loans and lower amounts (if approved) on government grants.

Another downside that is important to note is that you have to be convinced that you want to participate on these Prepaid Tuition Plans programs otherwise, cancellation and refund of these prepaid tuition plans imply high penalty fees and other costs that would turn such decision too onerous.