The new deficit reduction bill that is waiting for President Bush to sign (he is expected to do so) has a lot of nasty little provisions that will increase the cost of borrowing money for college including cutting $12 billion from student loans, increasing the current rate of Federal Stafford loans and making these loans a fixed (they are currently variable) rate. Among these, however, is one provision that may help those going to college who select to save through prepaid college saving programs.
Prepaid college saving programs allow you to lock in the current tuition rate for a college. There are 12 states that run these programs: Alabama, Florida, Illinois, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Pennsylvania, South Carolina, Tennessee, Virginia and Washington. There is also a consortium of some 250 private colleges that run a prepaid program called
Independent 529 college saving program. The program has been popular with parents that want to know the exact rate they will pay for college tuition and are afraid that college tuition will be beyond their means when their children are ready to attend college. There has been a big drawback, however, with how financial aid is calculated with these prepaid programs.
The current problem is that money placed into the prepaid college saving programs is considered the student's money. Under the Federal formula for giving financial aid, this means that the aid available is reduced dollar for dollar with prepaid college savings plans. The new law, however, will treat prepaid college savings plans as they currently treat 529 college savings plans - the money invested in the plan will be considered the parent's money. Since the Federal aid formula for 529 college savings plans states that only 5.64% of the parent's assets should be counted toward college aid, this new designation makes the prepaid college savings plans look a lot more attractive.
There continue to be a number of aspects to the prepaid college saving programs that it's necessary to understand in order to decide if this would be a good plan for your child. Most of the state run programs are restricted to residents living in that state and the tuition is only good toward colleges and universities within that state. Still, as soon as the bill becomes law, it will definitely be worth the time to take a closure look at these programs.
Source:
Financial Baby Steps
Prepaid College Saving Plans To Get Help
