Prepaid Tuition Programs Analysis Essay

Prepaid Tuition Programs Analysis Essay

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As college-level institutions look for new ways to raise enrollment and plan for their academic future, prepaid tuition (PPT) programs have gained in popularity. The basic premise of PPT’s is that parents (or others) can enter in to an agreement with a college or university to buy future college education by prepaying at the existing tuition rates (Baird, 2006). Depending on the contract, these tuition rates may also include a premium. A tenant of this PPT requires that the parents make regular payments to the school to fund a college account for the student to use towards future tuition costs. The plans are ideal for parents that don’t want to worry about rising tuition costs, and still want the tax benefits of 529 college savings plans (Smith, 2012). As long as the money paid in to the PPT is used for tuition or qualified college expenses, it is tax free.
Between 1986 and 1999, 21 states adopted some type of prepaid college tuition plan. As of 2009, only 13 of those states were accepting new enrollment in the plans (The Department of the Treasury, 2009).
In the early years of the prepaid tuition programs, they appeared to be a win-win situation. Parents of future college students could lock in tuition rates years in advance of their child attending college and gain the tax advantages of a 529 account, without the risks related to investing in the stock market. The schools receiving these PPT funds could invest the money over time, and could depend on steady return on their investments, and a solid base of future students (Clark, 2011). While the advantages seem simple on the surface, the programs have been fraught with issues. These issues have resulted in states having to bail out some universities, and have also l...

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...ok from Parents. (2009, March 23). Community College Week, p. 5.
Baird, K. E. (2006). Do Prepaid Tuition Plans Affect State Support for Higher Education? Journal of Education Finance, WINTER 2006(), 255-275.
Clark, J. B. (2011, October). Smart Ways to Save For College. Kiplinger’s Personal Finance, 60-62.
Doyle, W. R., McLendon, M. K., & Hearn, J. C. (2010). The Adoption of Prepaid Tuition and Savings Plans in the American States: An Event History Analysis. University of Georgia: Springer Science+Business Media, LLC.
Klein, A. (2007). Prepaid-College-Tuition Plans Feeling Fiscal Pressure. Education Week, 26(29), 15-18.
Smith, S. H. (2012, June). Should You Prepay College Tuition? Black Enterprise, 34.
The Department of the Treasury. (2009). An Analysis of Section 529 College Savings and Prepaid Tuition Plans (GPO). Washington, DC: Government Printing Office.

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