Parents of students planning to attend expensive private colleges can lock in big discounts if they can scrape together a few extra thousand dollars by June 30.
The discounts are being offered by the 272 private colleges that belong to the Independent 529 Plan. The plan offers parents and other relatives a tax-free way to prepay tuition at many small liberal arts colleges around the country, as well as expensive private universities such as Brandeis, Duke, MIT, Princeton, Rice, Stanford, and Vanderbilt.
Through June 30, the Independent 529 will allow parents to buy tuition at member schools for years 2013 through 2043 each for less than the school charged for tuition in 2009. (The Independent 529 requires investors to wait at least 36 months before redeeming their investments, and guarantees tuition for 30 years.) On July 1, the plan will change its name—to Private College 529—and temporarily stop accepting new contributions. It plans to reopen in mid-August with a slightly more expensive pricing system: Parents can still lock in tuition, but at each college's full 2010 rate.
Investing this month to take advantage of a discount from 0.5 percent to 4 percent off of last year's lower tuition prices is a bargain for any parent or relative who expects a child to attend any of the member colleges, says Joe Hurley, founder of Savingforcollege.com. "What's not to like? It's a really good deal," he says. The Hurleys are one of about 8,000 families that have used the Independent 529 to save or pay for college since it launched in 1998. Hurley saved money on tuition for his daughter, Megan, who graduated from Nazareth College in Rochester, N.Y., in 2009.
Many parents are hesitant to invest early in the Independent 529 because their children might not attend one of the member colleges, Hurley says. But the plan is recruiting new members. And parents whose children end up attending other schools, or who get big scholarships and don't need the money, can get refunds. The refund formula, designed to prevent parents from gaming the investment and protect them from massive losses, consists of the value of the original investment plus or minus a profit or loss of 2 percent a year, depending on the fund's performance. That means parents who ask for a refund now would likely get back a little less than they put in. Of course, parents who had instead put that money in other investments, such as mortgage-backed securities, would have likely lost far more.
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The savings are especially attractive for incoming freshmen at participating schools, because the odds are high that they will have to pay tuition for their senior year, 2013. For example, every $5,000 that parents of incoming freshmen at Dickinson College, in Carlisle, Pa., can prepay this month for their student's senior year could reduce the total they spend on their child's four-year degree by about $1,000. Princeton freshmen can buy their entire senior year's tuition this month for less than $35,000. If inflation continues at the current rate, Princeton will likely charge more than $40,000 in tuition by that time. Senior year potential savings of $4,000 to $5,000 are typical for most of the colleges in the plan.
Parents who can invest now for younger children will likely see even more significant savings. Duke University will allow families to purchase the full year of 2018 tuition this June for $37,500. That's a big discount even from 2010's tuition, which will total more than $40,000. If Duke raises its tuition by 3 percent a year, the cost by 2018 would be $51,000. A family able to plunk down about $150,000 this month for a 10-year-old would cover four years of tuition at Duke for at least $60,000 less than the college's likely sticker price. (Students and parents will still have to pay for room, board, books and other extras, however.)
Parents without a lot of extra money lying around right now can still lock in some savings. The Independent 529 enables parents to buy a percentage of future tuition at today's prices for investments as low as $25 a month. The changes coming July 1 will reduce the savings, but will still offer protection against tuition inflation.