Prepaid tuition or College Savings Plan?

[april004]

When my son was born two years ago I opened up a 529 college savings plan for him. Even though I am happy I found this route towards a degree, I want my son to go straight to college if he so chooses. I don't want him to be 32 yrs old like me still working towards a degree, although better late than never.

He's 2 now, but I will introduce him to the option of testing out of school when he is of age. Hopefully he won't mind following in mommy's footsteps and saving himself from student debt in the future. At the same time if he wants to attend a brick and mortar college I want him to have that option as well.

With the market being like it is, I was thinking of prepaid tuition for my son in addition to the 529 savings, just in case.

I was looking into the different prepaid tuition plans available in my state.
The only things I can really afford is to prepay for two years of community college and two years at a public university.

Would I be a bad mother by doing this? I would hate for my son to want to attend a private university and feel locked into having to go to community college for his first two years and then a state school because that is what mommy and daddy paid for.

At the same time I feel I would have been grateful had my parents the foresight to do any savings at all for when I approached my college years. I just don't want my son to struggle. Am I jumping the gun?

Should I just stick with the 529 savings plan solely or prepay the tuition now? Any advice would be appreciated!

[goldpaws]

I know nothing about prepaid tuition, so I'm not going to discuss it.
Do I think you will be a bad mother by not putting money away? No, not at all. You don't even know whether your son will want to attend college later. he may pursue a career that pays well & doesn't require college but does require brief training (i.e. LVN, dental assistant, real estate agent - all of these pay well but dont necessarily require a college degree)

I will say college tuition and boarding has risen substantially over the last few decades. Your son should be able to account for his money when it comes time for him to 'grow up'. There's nothing like spending your own hard earned money versus spending someone else's money. Not that a job is in order, but he should learn to budget or have a tuition allowance that requires making ends meet just a little bit. Trying to save while spending a lot is hard. Some lessons are only taught through a little manipulation because they are unimaginable otherwise.

My parents have saved up under my name and periodically dump savings in, sometimes thousands, other times only hundreds, at a time, depending on my grades or behavior. I see nothing wrong with traditional college savings provided there is consistency. Just placing a thousand or two in there and forgetting about it is not college savings. Interest is also something to think about. The earlier you can earn interest on the money, the better. Over a long period of time, it really does add up. Also, never using the money as spare cash is important. My parents put a down payment on their first real house with my sister's college fund in the early 90s. try not to touch it at all costs.

I don't recommend money markets..but CDs can be great, especially since rates can change and you can lock in for short or long periods of time and then choose to renew either with the same rate or better

Private colleges are nice but unless your son is truly gifted or is really extroverted (or really wants to try new things such as traveling instead of sports), it's not necessarily the way to go. Most students go to public, 4 year state universities and turn out well. Some find their way with sports or academic scholarships. Some even find federal or state financial aid.

Also, going to a community college for the first 2 years does have its advantages. If there's one in your town, then that's a great advantage for your son. not only does it have smaller classes/has a smaller campus but can be cheaper (plus the boarding factor is gone). There's also the factor of acceptance at a larger school for transferring that may have ties with the community college. For example, those who go to Blinn College right out of A&M are able to transfer to A&M without any or few problems. it can be an easy transition, compared to other "nightmare" transfers.

Ultimately it is your decision at this point. when your son is older you can let him manage a portion of his college savings. Of course, steering him in the right direction is a great idea when doing that but can be a priceless "supervised" lesson in investing. My parents saved to one particular place for a period of time and that was a permenant move. After I decided I no longer wished them to invest that particular way, partly because I realized I would graduate college at 18, partly because the returns were bad, we (yes i said we) looked at other options. I went for secure, low risk type investing with better interest rates (CDs) instead of a not-doing-anything with low interest "gift to minors act" money market account.

whatever you end up doing, dont forget to read all fine print, analyze all perspectives, and think ahead.
I also want to add my mother brings her calculator to ALL financial discussions/meetings. Don't just trust the banker or the investor salesperson/brokers.
their computers spit out numbers that are correct but they might not be numbers that really matter. My family found this most true during mortage lending discussions where a substantial amount of time and money is involved

[originalbigjim]

you son is two... this is the type of thing you should no be worrying about, the sky could fall before he is 18, college could be free by then. I have three daughters and all I have to say to them, student loans, grants and scholarships!
if they dont like it join the military. maybe that is cold but I go to college for free, my sister goes to college for free at a B&M school. If you apply yourself you can get the education you need at little or no cost. why should you struggle when they are two so when they are 18 the can black out 3 days a week in a frat house?

[OnMyWay]

Whoa Bigjim, I certainly don't think that's the best attitude!! While my husband has received many scholarships - including some for medical school, we don't expect for our daughter to make it through school that way. If she does, that's great! But we would like for her to have as many options as possible, including a savings especially for her.

April, my husband and I have been looking at options for our daughter (she is 3 months). We will get her some CDs and other investments, possibly stocks too if we can agree on some. While I think the idea of prepaid tuition is fantastic, I wouldn't choose that for my daughter. My husband and I went straight to A&M, I think she might like to go to a 4 year university also. I would hate for her to feel bad for something that was always her choice to make anyway.

Good Luck with whatever decision you make!

[Pattie]

Private colleges are nice but unless your son is truly gifted or is really extroverted (or really wants to try new things such as traveling instead of sports), it's not necessarily the way to go. Most students go to public, 4 year state universities and turn out well. Some find their way with sports or academic scholarships. Some even find federal or state financial aid.

Goldpaws:

I'm wondering why it is you feel that most students go to public colleges and that private colleges are only for the truly gifted. When I was looking at colleges for my son who is a good...but certainly not gifted - nor extroverted...student, I found that there was WAY more money to be had at the private colleges. Financial aid and scholarships were much easier to come by. State colleges only have, for the most part, what the state gives them. Private colleges, on the other hand, have all kinds of endowments and donations that provide funding for students. My son got a scholarship that made the cost of private college less than that of a state school (the least expensive state school, by the way). And...he has flourished there...so much so that my "good" student will be graduating with University Honors next month!

[WendyR]

Did you get your 529 statements last week and get sick to your stomach over the losses during the first quarter like I did? :mad:

My children are young as well, almost 4 and 16 months and they have had 529's since birth also. Everything is cyclical, or so I keep telling myself, and I just hope we are in a good cycle when it comes time to take that money and actually use it for them.

You could try some other safer forms of investing the money in addition the 529, like Goldpaw suggested, but then you also run the risk of accessing the money yourself, again like Goldpaw pointed out.

Do you have an advisor who set the 529 up for you? Maybe you could ask him/her for some advice.

Good luck in your decision!

[jake.fl.1987]

I think it is great that you are planning for your childrens future. My parents did not for me. I do not resent them for it. I am just fine and making it on my own. Some people tell me it builds charachter. I say that is just an way to make the people without feel better. HAHA. No in all seriousness it does teach you a lot.

Diversify your childrens saving just like you should your retirement. You have a 529. Make a long term CD. At least you know it will be there. When you get some more buy some stock in something. The main thing is you want the money to be available no matter what route they go.

You fear that doing the prepaid will lock them into community college for the first two years then state. Well if it is in CD's, Stocks, Bonds, and cash in a shoebox in the gun safe. Hell invest in other countries money since ours is bad. Take your money buy some euros. Then in 16yrs exchange them back. They will be worth 10x as much. I know that is sad. I hope the economy does pick up. It is available for them no matter what route they go.

If they want to go to private college tell them ok. First they apply for every scholarship in the sun. Which they wont get. (I am pessamistic). They will either not be smart enough. Others will say they are not 'special' enough. Some will say you are not the right demographic. We want an minority with a 2.8gpa not a cacasion with a 3.8gpa. Then the rest will say your mommy and daddy make to much money. So for them it is student loans and what you save.

But what was my whole point? Thats right do not do prepaid. This way no matter what directiont they go it is there. If they go to college or no. If it is public/private etc. If you can get it into something that would not be reported to the gov't when it comes time for college even better. Lowers the EFC which is realy good. Money Laundering anyone?

[bmills072200]

I would stick with the 529 accounts...too much risk involved in pre-paying for something that could dramatically change over the next 15-20 years...

[cookderosa]

I would stick with the 529 accounts...too much risk involved in pre-paying for something that could dramatically change over the next 15-20 years...

>>

This is also my suggestion. In addition, when the time comes, there will be new options that we have not yet invented- as well as the old stand-bys like scholarships, grants, and student loans. I'm in the minority, but I don't see any reason a child shouldn't pay for some of his degree. By pay, I mean working hard to earn scholarships, grants and and then taking out student loans. Of course, if CLEP is still around, that's a great way to reduce extensive costs.
One last thing, I would keep the money in your name. Your dear sweet 18 year old could blow it all on whatever she wants if you don't.

[april004]

Did you get your 529 statements last week and get sick to your stomach over the losses during the first quarter like I did? :mad:

My children are young as well, almost 4 and 16 months and they have had 529's since birth also. Everything is cyclical, or so I keep telling myself, and I just hope we are in a good cycle when it comes time to take that money and actually use it for them.

You could try some other safer forms of investing the money in addition the 529, like Goldpaw suggested, but then you also run the risk of accessing the money yourself, again like Goldpaw pointed out.

Do you have an advisor who set the 529 up for you? Maybe you could ask him/her for some advice.

Good luck in your decision!

Yes, that's what drove me to the prepaid tuition site. I saw the statements and my heart dropped to the pit of my stomach.

Me and the hubby have decided to keep the 529 and continue contributing to it while at the same time buying prepaid tuition, but instead we are only purchasing 2 years at the community college. The plan is also portable. If he chooses to go to the university in state or out of state, he can still use the money, it just won't go as far.

A part of me feels like I'm selling my son short by just prepaying for the community college and not the university, but that's what we can comfortably afford now. Plus he'll still have his 529 that he can use to continue @ the university if he so chooses. I just don't know if it will be enough depending on where he ends up. Maybe though, that will be incentive enough for my son to work hard, knowing he doesn't have a complete free ride and he may have to come up with some money of his own for the last two years of his education if the 529 falls short. I'm also going to open up what others have suggested, long term CDs.

Call me a bad mother, but really, I'd rather he not have to worry about where his tuition money is coming from. I've been through that , I don't think it made me a better or stronger person. It did make me more of a worry wart though when it comes to finances.

Anyways, thanks for all the advice! I greatly appreciated everyone's input!