Prepaid tuition accounts . . . talk about a downer

[Deleted]

Since people are interested in 529s, let me share MY unhappy experience. This is NOT a 529, but a prepaid tuition account.

I missed the fine print that said this wasn't guaranteed. The program closed the month after my oldest grandson was enrolled for one year of college tuition. I didn't miss the litigation thereafter since the program wasn't guaranteed, but my son said to take a "wait/see" approach.

The program has proposed a settlement setting tuition at the 2010 level. The problem is that the 2010 level isn't as much as I will have paid for the one year. Plus we are talking about TEN YEARS of possible growth. No way I can freeze it.

I am now scrambling to see if I can roll this over to the state's 529 plan. My grandson has ten years before he starts college. I did take a couple of tax deductions so there would be a penalty plus tax consequences if I simply withdraw it. But the state's 529 plan doesn't know if the PACT program accepts its rollover forms. They did when the litigation started, but I'm not seeing that now. And the 529 plan wasn't sure.

The worst part? I "financed" this contribution. That seemed great when I started projecting tuition in twelve years (I bought when he was in kindergarten). I don't have to keep contributing while paying interest (and I won't), but I thought I was doing something great for him.

Grr, grr, grr.

[happytraveler]

May 9, 2011 20:28:57 GMT -5 @southernsusana said:

Since people are interested in 529s, let me share MY unhappy experience. This is NOT a 529, but a prepaid tuition account.

I missed the fine print that said this wasn't guaranteed. The program closed the month after my oldest grandson was enrolled for one year of college tuition. I didn't miss the litigation thereafter since the program wasn't guaranteed, but my son said to take a "wait/see" approach.

The program has proposed a settlement setting tuition at the 2010 level. The problem is that the 2010 level isn't as much as I will have paid for the one year. Plus we are talking about TEN YEARS of possible growth. No way I can freeze it.

I am now scrambling to see if I can roll this over to the state's 529 plan. My grandson has ten years before he starts college. I did take a couple of tax deductions so there would be a penalty plus tax consequences if I simply withdraw it. But the state's 529 plan doesn't know if the PACT program accepts its rollover forms. They did when the litigation started, but I'm not seeing that now. And the 529 plan wasn't sure.

The worst part? I "financed" this contribution. That seemed great when I started projecting tuition in twelve years (I bought when he was in kindergarten). I don't have to keep contributing while paying interest (and I won't), but I thought I was doing something great for him.

Grr, grr, grr.

When you say you "financed this contribution" do you mean you borrowed money to deposit it in the 529 plan?

[Deleted]

What state... i don't do this, but i know my current stepmother does... hmmm...

[Deleted]

The state is Alabama.

I chose the "payment plan" (because I didn't have $7500 for one year). I borrowed through the plan, but I can stop the contribution at any time (which I will). But because I got a tax deduction, simply getting my $$$ back is complicated.

Trust me, it would have been a good deal, even with interest, if they could have kept it going. But college tuition is going through the roof since education budgets are being sliced. They closed it ONE month after enrolling my oldest grandson because they weren't getting stock returns. The state propped it up a little, but it is now being capped at last year's rate, which is a loss ten or more years from now.

[happytraveler]

May 9, 2011 21:05:47 GMT -5 @southernsusana said:

The state is Alabama.

I chose the "payment plan" (because I didn't have $7500 for one year). I borrowed through the plan, but I can stop the contribution at any time (which I will). But because I got a tax deduction, simply getting my $$$ back is complicated.

Trust me, it would have been a good deal, even with interest, if they could have kept it going. But college tuition is going through the roof since education budgets are being sliced. They closed it ONE month after enrolling my oldest grandson because they weren't getting stock returns. The state propped it up a little, but it is now being capped at last year's rate, which is a loss ten or more years from now.

Interesting--you are the first person I have ever heard of who used leverage to finance savings for college. Not doubting you that it made sense finanically, just think it is crazy that this is what it has come to. I hope you are able to find another savings vehicle that helps you get your grandson to college.

[Deleted]

I'm sorry. There was a recent article in our local newspaper about prepaid college tuition plans for the state and how it was underfunded. Apparently somewhere in the fine print it says that they aren't actually obligated to provide the education at the prepaid tuition rates.

Kudos to you for taking such an active part in your grandchild's education. I'm sorry it isn't working out now but they will appreciate it so much later.

[Gardening Grandma]

May 10, 2011 5:41:45 GMT -5 Lady Gaga Gaga Snerd said:

We have those in my state. Called a GSP which is "guaranteed savings plan" and you buy "credits" at today's tuition so down the road, you could purchase enough credits for a bachelor's degree or whatever. You can use it for most of the schools in the state barring some private colleges. But, then there is a lot of mumbo jumbo calling it a guaranteed plan but down the page saying it isnt' guaranteed. I couldn't get a straight answer despite calling and when you call it is like talking to customer service with a bunch of people who don't seem to know anything and just answer phones. I did think about just purchasing 120+ credits for each child so they would have a prepaid plan. But, i am also leery to do so, not really sure what the ramifications are if for some reason it isn't really guaranteed, etc. I did put some money in one of my kids but i just don't trust it. Also, i suppose there are other things, like what if we move out of state and maybe my kid doesn't want to go to school here or what if my sons don't really want college but the military and so forth or choose a different route, not sure if you get everything back. It just doesn't seem to be spelled out.

What state, Snerdley?

I'm in WA state and I'm using the state's GET (Guaranteed Education Tuition) plan. One of the reasons I chose it, is that is IS guaranteed by the state. The guarantee is written in the state law. The credits can be used for any accredited college, in or out of the state. They can also be used at vocational/tradevschools or transferred to a relative. The value of the credit is determined by the cost of tuition at the UW.

[Baby Fawkes]

gardeninggrandma,

I'm glad you got a bunch of credits under the way the plan was. They obviously got really concerned about meeting future obligations and the new rules aren't quite a good (average tuition prices of top 6 colleges) but still nice.

There are a lot of people where I work that glass half empty type of people and have been picking apart the conditions to find ways as to how they could back out of it, but I think it's one of the most secured plans out there. Some people are worried that because they only guarantee they will cover tuition, colleges may start trying to push a bunch of the costs onto other new costs that aren't considered tuition. Personally, not having kids myself yet I haven't looked into too much and take their fears for the pessimistic views that they are, but I think there's some risk involved there.

No idea yet what I plan to do for my (future) kids college but I'm sure things will still be incredibly expensive either way!

-BB

[Gardening Grandma]

Some people are worried that because they only guarantee they will cover tuition, colleges may start trying to push a bunch of the costs onto other new costs that aren't considered tuition.

Yeah, there are "state mandated fees" and non mandated fees. The credits cover tuition and "state mandated fees" but there is nothing to stop colleges from adding their own fees....

But, if the kids qualifies for a scholarship and/or FA, that will cover tuition and the state mandated fees, then the GET credits can be used for room & board, non state mandated fees, and a number of other costs....

[Frugal Nurse]

May 9, 2011 21:05:47 GMT -5 @southernsusana said:

The state is Alabama.

I chose the "payment plan" (because I didn't have $7500 for one year). I borrowed through the plan, but I can stop the contribution at any time (which I will). But because I got a tax deduction, simply getting my $$$ back is complicated.

Trust me, it would have been a good deal, even with interest, if they could have kept it going. But college tuition is going through the roof since education budgets are being sliced. They closed it ONE month after enrolling my oldest grandson because they weren't getting stock returns. The state propped it up a little, but it is now being capped at last year's rate, which is a loss ten or more years from now.

I'm sorry to hear they stopped the prepaid tuition program. I grew up in Alabama and always thought it was a great deal. Iwish my parents had contributed when I first started school (back in 1989).

Anyhow, sorry to hear you've put all that money in and lost out.