If a student decides later to attend a public school, the money can be withdrawn from a private plan with no more than a 2 percent increase or decrease in initial value, she says.
The alternative is to choose a state prepaid plan where parents buy tuition credits that are generally redeemed at a future year's public in-state tuition rate.
[Get the truth behind these prepaid tuition plan myths.]
"For example, if a child attends in-state at the University of Nevada—Las Vegas, the program pays $191.50 per credit hour. That same rate would be paid to BYU if a beneficiary attended that college," says Sheila Salehian, senior deputy treasurer of southern Nevada, referring to the private Brigham Young University. "Depending on the tuition rate, it may be paid in full or the beneficiary will have to make up the difference."
While every state's system is a bit different, Maryland's prepaid plan lets families use tuition credits based on a weighted average tuition of Maryland's public colleges. This year, that's $8,900, says Joan Marshall, executive director of College Savings Plans of Maryland. The family would have to pay the difference in price.
If parents bought a year's tuition in March 2003, they would have paid about $6,300 for about $9,000 worth of tuition that can be used for a private college in the 2013-2014 school year. "With our plan, more than half of our students who are using their plan are attending a private or out-of-state college," Marshall says.
Ultimately, families should choose what's best for them. "There are many college tuition savings options that exist and no plan is a one size fits all," says The Private 529 Plan's Farmer.
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