Years Away From College? Some Families Choose to Pay Now

Prepaid 529 plans one option for college costs

In 2010-2011, the annual current dollar costs for tuition, room and board at a public college was more than $13,000, according to the National Center for Education Statistics, a division of the U.S. Department of Education. At a private school, costs topped $32,000. Furthermore, prices have increased 42% at public schools and 31% at private not-for-profit schools since the 2000-2001 school year. At private for-profit schools, prices increased just 5%.

And many advisors find the savings options wanting. A survey conducted in March at the TD Ameritrade conference found more than half of advisors are concerned about the investment choices available in traditional 529 plans. Another option is prepaid 529 plans, which allow families to pay for college years in the future at today's rates.

Nancy Farmer, President, Private College 529 Plan

Nancy Farmer, president of Private College 529 Plan, a prepaid 529 plan, said the unwieldy amount of debt students can be saddled with is something advisors and families need to focus on early.

“We need to encourage families to start saving early,” she told AdvisorOne on Monday. “It doesn’t even have to be on a monthly basis,” Farmer (left) added, suggesting families contribute tax refund checks or make contributions for birthday or Christmas presents. “Parents and even grandparents are reading about debt,” she said. “That’s where advisors are going to be focused."

The College Savings Plan Network, an affiliate of the National Association of State Treasurers that monitors legislation regarding section 529 plans, declared September College Savings Month. In 2003, Congress passed a resolution officially acknowledging the designation “in order to raise public awareness about the need to save for educational expenses.”

Farmer said the benefits of the Private College 529 Plan, which include protection against tuition inflation and no fees, are popular among advisors.

“Advisors are not crazy about the investment choices in traditional savings plans,” Farmer said. “One thing they like about the prepaid plans, aside from tax benefits, is that they’re guaranteed.”

To help families find the right strategy for them, Private College 529 Plan launched a microsite, TomorrowsTuitionToday.com, with information about 529 plans and resources to help find the right school and be able to afford it.

“We wanted something that was an interim step, a site where families could learn more about other options and about saving in general,” Farmer said.

The Private College 529 Plan, which works with 273 schools, only covers tuition and mandatory fees, Farmer said, adding that families may want to look at their state-sponsored plan to help cover the cost of books, room and board.

“We want advisors to think about it like retirement. You need a diversified portfolio,” Farmer said.

Assets in prepaid 529 plans fell slightly from the first quarter to $21 billion, Financial Research Corp. announced on Sept. 13 in its quarterly report on 529 prepaid data, though assets are up 4.4% from the second quarter of 2011. There were 1.4 million active accounts in the second quarter, the firm found.

Total 529 plan assets, though, were over $157 billion in the second quarter, down 0.5% from the first quarter but up over 5% from the same period last year. 

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