Too many parents saw their children’s education go from Harvard University to Hudson Community College as a result the economic crash. For those who no longer wish to subject their child's college dreams to the vagaries of the market, Private College 529 Plan is here to help.
Farmer says the plan works like this: If, for example, a semester of college is worth $25,000, and the parents invest at that level, they now “own that education,” meaning if the price rises to $50,000 in 10 years time, no matter, $25,000 is all they will pay. There are no investments to choose, no performance indicators to watch and no worries about market downturn.
“You buy a portion of the tuition, and that portion is then fully paid for, regardless of whether the price rises,” she explains. “After the market’s crash in 2008, many parents put the children’s college savings into money market accounts to protect against loss. The problem is that tuition inflation is running 4% to 6% a year. There is no way a money market return will keep pace.”
The one drawback, she notes, is that the plan only includes private colleges, so “If your father went to [The University of] Michigan and you went to Michigan and now you want your child to go to Michigan, then this probably isn’t the plan for you.
Farmer claims 271 schools have signed on to the program so far, and that there is “a school for everyone” meaning some that are almost open-enrollment and some that are far more selective.
“Advisors are coming to us and saying, ‘we’ve never heard of this,’ and we respond, ‘that’s why we’re here’,” she says. “We can’t charge a commission, so we fit perfectly with the fee-only advisor. Until a few years ago, 85% of 529 investment s came from, or were recommended by, advisors. The RIA market is one area we definitely want to be.”