Joseph Hurley, founder of Savingforcollege.com, a Web site focused on paying for higher education, thinks prepaid tuition plans can be used well in conjunction with 529 savings plans. Most prepaid plans restrict eligible expenses to tuition and mandatory fees, while savings plans also cover room and board, books and supplies.
He thinks prepaid plans can be an especially good investment if tuition is rising rapidly, but says families should keep several things in mind. Most states have a residency requirement for their prepaid plans. Some states put their full faith and credit behind the plan, but other rely on the assets of the plan. “Public institutions are prone to politics,” he adds, and some states have charged very high premiums.
With prepaid plans, “you really have to read the fine print,” says Hurley, “and play out the different scenarios for what a child may end up doing.” This includes figuring out which instate school a child is likely to attend, because with a prepaid plan, he says, “You get more bang for the buck if you go to a more expensive school.”