Prepaid tuition plans provide parents with peace of mind because their investment returns are linked to tuition inflation instead of stock market fluctuations.
A prepaid tuition plan lets parents buy tuition at today’s prices (plus a premium), thereby avoiding increasing college costs and stock market instability. Prepaid tuition plans give them cost certainty.
“A longtime account owner told us recently about his experience with the Plan during the great recession. The thought that ran through his head while paying his daughters’ tuition was that he didn’t have to worry about what the market was doing, so he didn’t.” said Bob Cole, president of the Private College 529 Plan.
Stock market ups and downs are unavoidable. The stock market experiences at least three corrections and at least one bear market in any 17-year period. This is why 529 college savings plans encourage participants to manage the risk of their investments by using an age-based asset allocation.
Prepaid tuition plans do not suffer from stock market gyrations, at least not directly. Prepaid tuition plans invest in the stock market to meet their future obligations to families. Because of this, some prepaid tuition plans suffer from actuarial shortfalls and unfunded liabilities. Others have experienced surpluses, such as the Florida and Washington prepaid tuition plans.
About half of the prepaid tuition plans offer some form of guarantee, such as backing by the full faith and credit of the state. The Private College 529 Plan requires participating colleges to accept less than full tuition and fees if the prepaid tuition plan fails to keep pace with tuition and fee increases.
Prepaid tuition plans also present a hedge against tuition inflation.
Although some colleges may freeze tuition while the coronavirus pandemic is ongoing, tuition increases are likely to follow. College enrollment is expected to drop this fall by as much as 10% to 20% as students stay closer to home or take gap years. Public colleges may experience cuts in state appropriations due to declines in state tax revenue, forcing above-average increases in public college tuition.
Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college.
Mark writes extensively about student financial aid policy. He has testified before Congress and federal/state agencies about student aid on several occasions.
Mark has been quoted in more than 10,000 newspaper and magazine articles. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time Magazine. He was named a Money Hero by Money Magazine. He is the author of five bestselling books about scholarships and financial aid, including How to Appeal for More College Financial Aid, Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship.
Mark serves on the editorial board of the Journal of Student Financial Aid and the editorial advisory board of Bottom Line/Personal (a Boardroom, Inc. publication). He is also a member of the board of trustees of the Center for Excellence in Education. Mark previously served as a member of the board of directors of the National Scholarship Providers Association.
Mark is currently Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation.
Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis.
Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU). He has Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.
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