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Why use a prepaid tuition plan? Here are several reasons:
Pay less. If you spend $15,000 to buy one year’s worth of tuition that your child won’t use for 10 years, assuming tuition is valued at $25,000 by the time he or she enrolls, you’d be saving $10,000, which is not taxed!
Gain peace of mind. With a prepaid plan, you don’t have to worry about volatility in the financial markets. Your benefit is guaranteed. One of the account holders in our plan told us in a recent survey that her decision to purchase a prepaid tuition plan was reinforced when she saw friends with high school juniors and seniors lose half of the money they had built up in other investment in 2008. Her children, by contrast, got all the education she’d paid for.
Increase certainty. You will know what the cost of college will be for your daughter or son five, 10, or 18 years into the future. The College Board tells us that both public and private school tuition is not rising quite as rapidly as it was several years ago, but it still is rising faster than family incomes. The more education you buy at today’s prices the less you need to worry about higher tuition.
This is not to say that prepaid tuition plans are all you need. Remember they are designed to pay tuition and certain fees at colleges and universities. If you also have a 529 investment plan, those funds can fund room and board, books and other expenses not covered through prepaid tuition.