The WSJ has an article today on Private College 529s. I was not aware of these until now, but they seem like a great way to lock in tuition rates at any one of the ~300 or so private colleges that participate. You are essentially buying tuition credits at today’s rate even if your child won’t attend for years.
If you’re a full pay parent whose child is likely to be admitted and attend one of these colleges, you could save a lot. These plans are not like traditional 529s. Your money does not grow tax free (or at all). Rather, it sounds like when you ‘purchase’ tuition credits the participating universities invest it into a trust for them.
Does anyone know how these assets are viewed for families applying for financial aid? Is it just another parental asset? Thanks.
Edited to include one description of these plans: Private College 529 Plan Explained | Merriman
Edited again to share what I learned from Collegewell. Apparently, these are either individual or UGMA accounts. I guess that means they are considered parental assets until the age of majority in the child’s home state?
Maybe they’re not so great for those with long time horizons. If colleges raise tuition 4% per year on average, you might get better returns invested in a regular 529. No restrictions on institutions also.
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What do you get if your child doesn’t get into one of the private schools?
Florida prepaid has a formula for what you get if you don’t go to a Florida public school, which is basically the cost of tuition (and the room option if you took that). If tuition has risen 5%, your funds rise too. If tuition remains the same (looking at you Purdue), you get less to use at another school.
Non-529 UGMA accounts are always reported as an asset of the student/beneficiary. 529 UGMA accounts are always reported on FAFSA as a parent asset.
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It is an interesting proposition but not a slam dunk. Essentially, it is a risk and tax free return at the rate of the college’s tuition increase. On an after-tax basis, it is not awful for those in a high tax bracket and at a school expected to have decent sized tuition increases. Knowing that one should move to more conservative investments as the payment date approaches, I think it is a decent but not great deal.
One thing I find attractive is the idea of locking in a 2022-2023 tuition rate for my offspring despite the fact that the first year’s tuition (2023-2024) is more than 5% higher. In other words, I’ve prepaid the senior year of college tuition at the rate in effect during senior year of high school. Not a terrible deal. It is kind of funny that senior year is going to cost me less than freshman year.
If we didn’t have to wait 3 years before using the funds, I would have prepaid more years.
Note I started participation after I knew where my offspring was going to school, know the tuition, and the payment date is near (within 4 years).
You would be better off investing in a 529 brokerage-style account in your state of residence or a state plan that accepts out of state participants. It isn’t a matter of financial aid eligibility. It’s a matter of you being able to direct your investment and having more control over it than with a plan like the one you are describing.