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What About Pre-Paid College Plans?


As the stock market has become less dependable, pre-paid programs have more success stories.

If you live in a state that offers its residents a pre-paid college plan, you have one more option when it comes to saving for your children's education. As you weigh the upsides and downsides of 529 plans, stock investments, and other savings plans, this is one more program you can add to your list.

And it's one that requires you to read the fine print. While a pre-paid plan sounds simple enough -- pay for college now, cash it in for tuition credits later -- these plans differ from state to state.

Each state does require that you be a resident of the state at the time of enrollment, and each program will save on the cost of a public school education. Beyond those two facts, it's hard to generalize about these programs.

Still, knowing how one pre-paid college plan works can give you an idea of what such a program can offer, as well as the types of questions you should ask as you research your own state's plan.

The state of Washington has one of the more flexible policies, says Betty Lochner, director of Guaranteed Education Tuition program.

She says the most important thing about Washington's plan, or any plan for that matter, is that it gets people to start saving for college. Whether they pre-pay for their child's entire four years of college, or just a portion, it's a way to have some money to put toward an education.
Participants in Washington's GET program purchase "units." One hundred units will pay for one year of college at the University of Washington or Washington State, the state's highest-priced public institutions.

However, says Lochner, GET does allow families to consider private colleges and out-of-state options, as well. If, by the time your child is ready to apply to colleges, and a private school is what your child really wants, all the money put toward units today will be available to use for public or private options.

That's what Erin Copeland, a resident of Olympia, Washington, did. She is now a sophomore at the University of Evansville in Indiana.

"My major is music therapy, and there are fewer than 40 schools in the country that offer the major," she said. "None are in the state of Washington, so that's why I went out of state.

"It's an expensive school," she added, "but my parents were supportive of my choice. I think they saved enough money for me that I could have gone to school debt-free if I had stayed in Washington. But I have a large music scholarship, and I applied for outside scholarships, too. It's worked out well for me."

Lochner said similar scenarios are common.

"GET students have used their accounts at colleges in all 50 states and five foreign countries." She said. "You can also use the money at a regional college or a technical college." And if your child doesn't want to go to college? "You can pass it down to another family member: a sibling, a niece or nephew. Parents can use it. Or, you can take the money out. It's your money."

While a refund is an option to keep in mind, Lochner says, you have 10 years from your child's high school graduation before you have to use the money.

"Some students go out into the workforce and then decide what it is they want to do," Lochner said. "Then, the money is waiting for them. It's worth a lot more if you leave it in the fund."
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