Prepaid Tuition vs. College Savings
Planning ahead for your child's college education is a wise financial move that can help her get a head start in life. When you undertake the process of saving for your child's college education, you could potentially choose to use a prepaid tuition plan or a college savings plan.
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Prepaid Tuition
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The prepaid tuition plan is a program that allows you to pay the tuition for your child's education in advance. With this plan you will pay a certain amount of money on a regular basis, and it will pay for the tuition for your child if he attends a school in your state. A prepaid tuition plan is only for state residents, and it can allow your child to go to any public university or college in your state. It may also provide tuition for private colleges if the school you choose participates in the plan.
College Savings Plan
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A college savings plan is a type of plan that allows you to set aside money for your child's college expenses. With this plan you are not prepaying tuition to a certain group of colleges, but you are instead setting aside money in a separate account. Once your child reaches college age he can use the money to pay for qualified education expenses. Once you deposit money into the account, you can then invest the money into various securities like stocks and bonds. The money that is earned from these investments is not taxed.
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Prepaid Tuition Considerations
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One of the advantages of a prepaid tuition plan is that it can guarantee tuition is paid even if tuition costs rise. While getting this type of plan can be beneficial, it also limits the options for your child. Your child may feel obligated to go to a participating school within the state. Another potential problem is that it generally only covers tuition. Your child will still have to come up with money to pay for books, room and board and other expenses.
College Savings Plan Considerations
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Getting a college savings plan can provide your child with a way to pay for any qualified education expenses. The expenses are not only limited to tuition for the school that she chooses. This can provide added flexibility for your child when she goes to college. One of the drawbacks is that you have no guarantees associated with the returns on your investments. You also have to pay fees to the management company that maintains your account.
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