State Prepaid Tuition Plan

State Prepaid Tuition Plan

Thanks to student loans, too many kids today are graduating from college already tens of thousands of dollars in debt. It’s time for parents to pick up the reins and start saving for their children’s future. These new government plans make it more advantageous than ever.

Passed in 1996, the Qualified State Tuition Program (QSTP) allows every state to develop its own 529 plan, named for the IRS Section that regulates it. There are two types of 529 plans. The first is the prepaid tuition program, in which you can buy your child’s future education at today’s tuition prices.

There is no national publicity campaign in force for the two plans that fall under the Qualified State Tuition Program. Each state is responsible for promoting its own plan. For the best information available on the Web, go to www.collegesavings.org and click on your state to see what’s available. You may purchase any state’s College Savings Plan no matter which state you live in (not so of a prepaid tuition plan).

However, there’s good and bad aspects of prepaid tuition plans. The chart below presents some sample issues for you to consider when deciding on an investment vehicle for college. You should thoroughly research the advantages and disadvantages of the QSTP you are considering before making any decision.

Advantages

  1. Allows you to lock in today’s tuition rates.
  2. Great idea if your child knows he or she wants to attend an in-state college.
  3. Most plans allow you to transfer proceeds to another family member.
  4. Proceeds cover tuition and all mandatory fees.
  5. Federal tax deferral.
  6. State tax deductions on contributions.
  7. Some plans offer state income tax exemption.
  8. Plans guaranteed by state governments.

Disadvantages

  1. Plan proceeds may count against your child’s eligibility for financial aid.
  2. Proceeds only cover in-state college tuition programs.
  3. If your child does not attend college, you will get your money back–possibly with interest–but not likely as much as if the money had been invested elsewhere.
  4. Proceeds will not cover room and board, textbooks, or equipment.
  5. Limited enrollment period each year.
  6. Some states set age limits, such as newborn through 9th grade.
  7. All states enforce residency requirements.
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