At scores of institutions nationwide, students and their families have a chance to save thousands of dollars on future tuition expenses by prepaying based on today’s tuition price.
The sooner you pay, the more you can save.
For those who are able to pre-pay for college expenses, they typically save about 10% off their college bills for each year’s worth of expenses covered.
If 10% doesn’t sound like a lot to you, think again – especially if your kid is years away from starting college.
In the 2014-2015 school year, the total cost of college topped $23,000 annually at the average four-year public school in America, according to the College Board. But total yearly costs were twice that amount, more than $46,000, at private schools in the U.S.
So for a school that’s $25,000 a year, that 10% savings from pre-paying college costs will result in $10,000 kept in your pocket over the course of your kid’s four-year education.
And if Junior attends an even pricier school – say a private institution that can easily top $50,000 a year – then your 10% savings just doubled, in dollar terms, to $20,000 while your child earns his sheepskin.
Who wouldn’t want to save that kind of money?
To find out if a school you’re interested in offers a prepaid plan, just Google the school name and phrases like prepaid tuition or prepaid college plan.
Socking Away as Little As $25 a Month
Even if your school of choice – or a school your family may be considering – doesn’t offer its own direct pre-paid tuition option, you should look into whether the college is listed as part of a group called Private College 529.
This organization, to which more than 270 private schools belong, lets families sock away as little as $25 to start a 529 college savings account and they can make additional pre-payments of just $25.
Obviously, if you take this route, you should try to save more. But those figures just show you how little you can set aside and still take advantage of a tuition pre-payment method.
When you save money through Private College 529, you get tuition certificates that you can use at any one of the member colleges. You must save for at least three years to later use those certificates. But as I explain in my book, College Secrets, since the certificates are portable, you don’t have to lock in or choose any particular school upfront.
The Private College 529 Plan is established and maintained by Tuition Plan Consortium, LLC, a non-profit organization. OFI Private Investments Inc., a subsidiary of Oppenheimer Funds, Inc., manages the program. (Be sure to also see College Secrets for Teens for details on the benefits of 529 plans, as well as my tips for the best ways to save for college while your children are in grade school, middle school or high school).
Locking in college costs ahead of time, and prepaying higher education expenses is obviously a strategy best suited for those with young children. But even someone with a teen who’s a couple years away from entering college can still make this technique pay off.
Ideally, parents with kids between the ages of 1 and 16 would investigate and consider prepaid college options. If you decide to stash away savings or pre-pay those bills, you’ll be glad you did when it comes time to write that check for tuition, fees and other college expenses.
All information on this blog is for educational purposes only. Lynnette Khalfani-Cox, The Money Coach, is not a certified financial planner, registered investment adviser, or attorney. If you need specialty financial, investment or legal advice, please consult the appropriate professional. Advertising Disclosure: This site may accept advertising, affiliate payments or other forms of compensation from companies mentioned in articles. This compensation may impact how and where products and companies appear on this site. AskTheMoneyCoach™ and Lynnette Khalfani-Cox, The Money Coach® are trademarks of TheMoneyCoach.net, LLC.