Busting the top 7 myths about prepaid tuition plans

http://www.savingforcollege.com/articles/busting-the-top-7-myths-about-prepaid-529-plans-896

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When it comes to saving for college using a prepaid tuition plan, very often inaccuracies, misconceptions and myths can stand in the way of actually getting started. To help you better understand prepaid tuition plans and how they work, here are some common myths and the facts that bust them:

Myth #1: If I get a scholarship, I can't use my prepaid tuition plan.

Facts: False! As a general rule, prepaid tuition plans can work along with any scholarships you earn to make sure as much of your educational costs are covered as possible. For example, if you qualify for a Florida Bright Futures Scholarship, in most cases, your scholarship, along with benefits payable from your Florida Prepaid Plan, can both be applied to your student account. If there are any excess funds in your account, they can be used for other school costs, like books.

Alternatively, you can elect to use your scholarship and request a “scholarship refund” for any benefits that would have been payable from your Florida Prepaid Plan. Under this option, your scholarship refund is equal to the value of any prepaid tuition plan benefits that would have been paid to your school.

Myth #2: To use my prepaid tuition plan I have to go to college right after I graduate.

Facts: Again, false. Depending on which plan you use, it might be good for 10 years after the projected year of enrollment included in your prepaid tuition plan application. So you want to take a year off to work? Or maybe you want to backpack through Europe? Go for it! Just come back this decade.

Myth #3: If I buy a prepaid tuition plan and my student decides to go to an out-of-state university, I lose my investment.

Facts: Absolutely not! If your student decides to go to an out-of-state university, you can most definitely still use your plan! While most prepaid tuition plans are designed to be used at state colleges or universities, the value of the plans can usually be used at other schools nationwide. If your child decided to attend a different school, many state prepaid tuition plans will pay out an amount equal to the weighted average tuition and mandatory fees at your state's public institutions, not to exceed the actual tuition and fees you incur. You can also usually transfer the plan to a sibling.

RELATED: Prepaid tuition plans: Here's what you need to know.

Myth #4: Prepaid tuition plans can only be used to save for public schools.

Facts: There are options available for students planning to attend a private school. For example, the Private College 529 is a prepaid tuition plan designed specifically to save for private colleges and universities and currently has over 280 schools in its network.

And even if you save with a traditional prepaid tuition plan and your child decides to attend private school, you can usually transfer an amount equal to what would be paid to the public school your plan is designed for — you're just responsible for the difference.

Myth #5: I'll lose all of my prepaid tuition plan savings if my child doesn't go to college.

Facts: You won't lose everything, but if your child decides not to go to college and you can't pass it on to a sibling, most plans will only refund the principal, which means you'll lose any interest earned. In some cases, you might even be charged a cancellation fee.

Myth #6: If you open a prepaid tuition plan, you can't have another 529 plan.

Facts: You can also enroll in a 529 college savings plan. This might come in handy since a savings plan typically covers additional expenses that a prepaid tuition plan doesn't, like textbooks and supplies.

Myth #7: If I move out of my current state, I will lose my prepaid tuition plan.

Facts: State residency is required to purchase a prepaid tuition plan, but it isn't required to keep one. If you or your child move out of state at some point, no problem — your plan will continue as if you never left the state where the prepaid tuition plan was purchased. If your child attends a state college or state university where the plan was purchased, they will be considered an in-state student.

Hopefully this list of facts has helped to clear up some of the misinformation about prepaid plans. If any of these truths have surprised you, make sure you spread the word. You're probably not the only one.

RELATED: 7 myths and realities of 529 plans