<p>We have two rising college sophomores at private schools (about $50K+ each, no scholarships) and a rising HS sophomore. Much of our saving for college expenses is in the PA "guaranteed" savings plan where you buy college credits at current rates and they give you cash for the credits bought at the time the child goes to college. A couple of months ago I was made aware of this article: Tuition</a> savings fund sagging</p>
<p>"... Pennsylvania parents looking for a safer haven for their college savings funds poured $102 million into the state's $1 billion Guaranteed Savings Plan. Enrollment jumped 26 percent, as 3,500 new investors joined the plan.</p>
<p>Now, those parents are left wondering just how safe their money is.</p>
<p>The fund, which allows investors to purchase tuition credits at today's prices and redeem them in the future, had a $328.7 million deficit at the end of 2008, leaving it 75.5 percent funded. That means that in the unlikely event that every investor who has purchased credits cashed them in today, they would only receive 75.5 cents of tuition for every $1 they purchased .."</p>
<p>"Compounding investor anxiety is the fact that the "guarantee" goes no farther than the money in the fund; state taxpayers are not obligated to make up any shortfall."</p>
<p>I'm curious where those of you who've saved for college and have a short horizon, are keeping the funds to minimize market risks.</p>
<p>There seems to be a flaw in this. Say you’re S/D was born in 1991 and you immediately began contributing to the fund the day he/she was born. You were paying the going rate for college credit in 1991, not 2009. So even if the system will only pay for 75.5% of today’s tuition rate aren’t you still coming out ahead because you were purchasing credits at the 1991 rate? Tuition has grown so much in the last two decades that I think investors in this plan are still better off even if the fund only covers 75% of your child’s tuition bill. Am I missing something?</p>
<p>Unless I missed it, our money in the Maryland pre-paid plan will still cash-out at 100% of tuition. Sorry to hear about the PA situation.</p>
<p>Our age-based mutual fund 529s were down 20% at the lowest point. Since then, they’re only off by about 12%. I think we can delay withdrawing for about a year and get a little more recovery. </p>
<p>We had the same problem in Ohio several years ago. Once the state got in way over their heads they knew they had to take some action. They froze new investments into the guaranteed plan to protect the state while opening other non-guaranteed investments. Then they froze instate tuition for several years which slowed down greatly the increasing value of the guaranteed fund protecting the state some more but not those of us sending our children to private U’s. In the end they have paid out everything at the promised rate. Next year instate tuition will start going up again so the value of what we have left in the two kids’ accounts will start to increase once again.</p>
<p>Obviously each state is different but there are models for how a state can manage their way through this problem without totally messing those who invested in the funds.</p>
<p>Thanks for starting this thread. I was going to start a similarly titled thread but I did not want to appear to be gloating. My 2 sons have 529 plans with NJBEST, and they are the only investments that we have that are worth more than we put into it! I find this ironic, because NJBEST was recently ranked at the bottom of 529 plans, yet our money was invested in an age based fund that moved to short term US Treasuries when the boys were around 16/17. I called NJBEST last year (somewhat panicked) because I did not know how the fund was invested, and was somewhat relieved after the phone call. Now, as I look at my statements I am more than relieved. Yes, there are actual capital gains in their 529 plans, which of course will be tax free as I withdraw the money to pay for college.
S2 is getting almost 1/2 a semester “free”.</p>
<p>Your contributions are guaranteed to keep up with tuition inflation, plus a discount of 1/2 - 1 % per year. If your kid doesn’t end up going to a school on the list, you can transfer to another beneficiary, or get your money back based on actual returns but limited to +/- 2% per year. </p>
<p>I’ve got two kids and am hedging my bets by having one kid’s college money in a regular 529 plan, and the other kid’s money is the Independent 529 plan, knowing that I can transfer accounts between the two kids. The regular 529 plan is down a lot, although I haven’t checked lately to see the current damage.</p>
<p>We have our college funds in the Michigan TIAA-CREF interest only option. It has chugged along at just under 4 percent through all the mayhem. Been very pleased thus far. By the time our kids got to middle school we did not feel comfortable putting college funds in stocks.</p>
<p>NJres- I also have the NJBEST funds and feel they have held up well. My D qualified for a $750 award based on the time frame we were enrolled. I just looked at my statements since I dollar cost average the same amount each paycheck and it appears the shares went from $9 to $13. I had another 529 that I moved to cash when the S&P500 went over 1500- so I was also happy with that also.</p>
<p>This is a reply to post #2, AU tiger:
You’re right that if you had invested for fifteen years and we got paid 75% of the compounded hike in tuition over that period, it won’t be bad. The problem is for those of us who have only invested, say 5 years. What I didn’t mention (for simplicity) is that at one time there was even a small premium in purchasing at “current” rates, so it cuts in even more.</p>
<p>To #6, Sacchi, believe it or not, the other place we have some money in is the independent 529. We were concerned that if none of our kids went to a participating school, the returns would be disappointing, so didn’t put too much money in it. Fortunately S1 went to Carnegie Mellon, and as you say, we get the prepaid rate plus a small bonus. However, since there’s a waiting period of 3 years to withdraw the funds, we can’t put any more money for him, but we’re going to use it for his senior year so that we can drain away the money in the currently underfunded PA GSP fund. If PA acts similar to what SharonOhio has described, we should be OK.</p>
<p>I guess the question for us is where to put subsequent contributions since we get a 3% PA income tax deduction to make things even more worthwhile.</p>