As a kid, my exposure to pop culture was limited by the fact that I grew up in a rural area where our giant outdoor TV antenna picked up exactly one channel. Fortunately, that channel did deliver the Saturday morning goods by way of the Teenage Mutant Ninja Turtles and direct-to-kids advertising that was rampant through much of the late 80s and early 90s.
My protective bubble burst in a blaze of glory in late middle school through the magic of…satellite TV [insert “mind blown” meme here]! Overnight, our household TV channel portfolio grew by nearly 19,900% from 1 to 200+ channels. It’s safe to say this was the highest-grossing investment my family will ever know (though certainly not the most rewarding one – more on that later).
Ironically, with immediate access to countless new forms of content, I found myself drawn explicitly to the show that was literally about nothing. I mean, what’s the deal with satellite TV? I had hundreds of options, and I only wanted to watch Seinfeld reruns!
Believe it or not, despite the show’s reputation, there’s a lot one can learn from the four, arguably morally bankrupt, main characters, including why things like prepaid tuition plans might be a good choice for many families.
This was reinforced when I recently rewatched “The Stock Tip” episode, where George got a hot stock tip and talked Jerry into going in on a risky investment with him. Jerry, who was uncomfortable with market risk, agonized the entire episode as he saw the value of his holdings plummet every day until he couldn’t take it anymore and sold out at a significant loss. Sure enough, a few days later, the stock had recovered, gained exponentially, and made George a tidy profit, much to Jerry’s chagrin.
The point that really hit home in that episode is that investment-based 529 plans, while an important source of long-term investment growth for many, are not the tool that every college saver is comfortable relying on exclusively. And that’s perfectly okay. Some families want to know they are building their college savings without the added stress of market swings. Others may be seeking a defined benefit with a known outcome. And yet others may want to diversify and not have all their eggs in one basket.
This is where prepaid tuition plans come in. These unique and special products, only available in certain states, take much of the uncertainty out of the college savings picture. Designed to keep pace with rising tuition costs in a given state, savers in these plans not only have a hedge against long-term tuition inflation but can rest easy knowing that market timing won’t be a factor when needing to pay for college. And, despite common misperceptions, these plans often allow you to use your funds out of state and for various other higher education expenses beyond tuition, just like their investment-based 529 brethren. Keep in mind that prepaid benefits, when used for expenses beyond in-state tuition, can vary by plan. As with any financial product, it’s important to read the full disclosures before opening an account.
Now, full disclosure here – as co-chair of CSPN’s Prepaid Tuition Committee and an administrator for a state that offered a prepaid tuition program as our sole 529 option for 20 years, I wouldn’t be very good at my job if I wasn’t trying to convince you how great prepaid plans are! But I can also personally attest to the power these products have. For my daughter, my wife and I participate in both of our state’s plans. We put our largest share of contributions into our prepaid account to lock in peace of mind and contribute additional funds to our investment-based 529 to boost our overall expected return.
Just like Seinfeld was the ideal choice among the many content options to help shape (warp?) my still-developing pre-teen mind, my family’s blended prepaid/investment strategy is the perfect balance for our college savings goals. As you consider your own education savings goals, a prepaid tuition plan may be worth a look if your state offers one, especially if you’re seeking that perfect peace of mind. In the immortal words of George’s dad, Frank Costanza: “Serenity Now!”
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About the Author
Luke Minor is the Senior Director of Postsecondary Affordability at the Washington Student Achievement Council. In his role, he oversees Washington State’s Education Savings Plans (WA529), which include the GET Prepaid Tuition Program and WA529 Invest. Since 1998, tens of thousands of students have used more than $2 billion of their WA529 savings to attend colleges in all 50 states and at least 15 foreign countries. In his free time, Luke enjoys getting outside to hike, ride bikes, and even splash in a puddle or two with his wife, rambunctious five-year-old, and young-at-heart geriatric dog. And yes, he still watches Seinfeld reruns from time-to-time.