Is the Private College 529 Plan Right for Your Family?
Saving for college for your kids or grandkids can be tough. I should know. My husband and I started saving for our own daughter’s education from the minute she was born. Here at Savant, we preach the gospel of saving early, often, and using the benefits of 529 plans to make the job easier.
Recently, though, I learned of another type of 529 plan, the Private College 529 Plan, that can be used by families who have their hearts and their pocketbooks set on saving for the cost of a private university for their student.
First, a little background on the plan itself. The plan is owned and operated by member colleges and universities, of which there are over 300. Some of the member colleges are names you’ve heard of, including Princeton, MIT, Duke, Georgetown and Notre Dame. Members designed the plan to encourage families to save for college, to help make their costs more manageable, and to develop a broad and diverse group of private colleges from which students can choose.
The plan is a pre-paid tuition plan. Families open an account and name a beneficiary student on the account. Contributions purchase college tuition and mandatory fees in the form of tuition certificates, which are redeemable at any current or future member school. Between July 1 and June 30 of the following year, contributions lock in that year’s tuition and fees rate at each member school. On July 1, all contributions from the previous 12 months go toward the purchase of a single tuition certificate (whole or fractional) for all member colleges. Rates change on July 1.
Upon enrollment at a member college or school, the account owner redeems a tuition certificate for that semester for their student, potentially saving thousands of dollars on the cost of college. Participating colleges bear all the financial risk and are contractually obligated to honor prepaid tuition for up to 30 years. There are no fees associated with the account. Every dollar put into the account pays for tuition at current rates.
Some additional benefits of the plan include:
- No Market Risk: The Private College 529 plan’s value links to future tuition increases, not to investment markets.
- No Income Limits: There are no income phase-outs for investors, and account caps are generous (currently $305,000).
- Tax and Estate Planning: Earnings are federal tax-free if used for qualified expenses, and contributions are completed gifts that qualify for gift tax exemptions.
- Flexibility: Investors have options if the beneficiary chooses a school outside of the network.
This plan can be used as an additional, layered approach to saving for college. Whereas the Private College 529 plan only buys tuition certificates to pay for the cost of tuition and mandatory student fees, your family may still want to use a traditional 529 plan to save for the cost of room and board, books and supplies, software, and other necessary college expenses. Remember that the Private College 529 plan locks in those tuition costs at today’s prices.
So, you might be asking what happens if you open and fund a Private College 529 account and your student ends up going to a non-member school? Like traditional 529 plans, your family has options. You can assign the account to another beneficiary student, you can roll the Private 529 plan account into another traditional state 529 plan, or you can ask for a refund from the Private College 529 plan. The plan website includes a formula to determine the refund or rollover value of your account.
If your student ends up at a college that later withdraws from the plan, the school would be obligated to honor all tuition certificates purchased before withdrawing. However, certificates purchased after the school withdrew would not have to be honored by that school.
One final point: families who think they might want to use this plan need to set up the plan account at least three years before any tuition certificates bought can be redeemed, so setting up an account takes some pre-planning.
Is the Private College 529 plan right for your family? Talk this over with your Savant advisor to determine if the plan’s benefits are right for your situation. College doesn’t come cheap these days, and this might be another tool to add to your college-saving toolbox!
For more information about the plan, including a list of member schools, see https://privatecollege529.com.
This is intended for informational purposes only and should not be construed as personalized financial advice.