Prepaid Tuition Plans for College Education:

Abstract

During the 1990-91 school year, thirty states cut higher education budgets by an average of 3.92 percept. Higher education costs for universities and tuition fees for students have increased dramatically during the 1980's and likely will continue to rise during the 1990's. Parents are concerned that a college education may be prohibitive in the near future. Consideration of prepaid tuition programs as a means of funding a college education may provide a means to ease that concern. This paper discusses strengths and weaknesses of prepaid tuition programs and provides an analysis to illustrate their use as a possible alternative in funding a child's future education. Some financial planners seem to be steering people away from these prepaid plans. However, prepayment plans do offer significant potential benefits to parents in regard to locking in the cost of college tuition. As seen in the analysis, a parent of ten-year-old child can invest $10,356 and receive tuition benefits in excess of $30,500.