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What is a prepaid tuition plan?

January 10, 2019

A prepaid tuition plan allows a student to pay the same tuition rate for every year that he or she attends college.  Unlike with tuition guarantees, which do not require advance payment, prepaid tuition plans typically require students to pay the cost of tuition for their entire degree program in advance of starting school.  Prepaid tuition plans apply only to tuition expenses, and exclude other costs such as room & board and student activity fees.


There are two different types of prepaid tuition plans: state-sponsored and school-sponsored.  These two types of plans have some fundamental differences, as explained below:


State-Sponsored Prepaid Tuition Plans
Also known as 529 prepaid tuition plans, state-sponsored prepaid tuition plans allow participants to contribute money to tax-advantaged savings accounts for the purpose of paying for college.  Unlike 529 college savings plans, which can be used at participating colleges nationwide, state-sponsored prepaid tuition plans are only available in these ten states:   


State-sponsored prepaid tuition plans, which have an in-state residency requirement, enable qualifying participants to pay current tuition rates for a college degree to be completed many years in the future.  (Some state programs assess different tuition rates based on the age of the beneficiary at the time of plan enrollment.) The purpose of enrolling in a state-sponsored prepaid tuition plan is to fund a college education at an in-state public institution.  However, if the beneficiary of a prepaid tuition plan ultimately chooses to attend college in a different state, then he or she is permitted to withdraw the prepaid funds at a predetermined valuation rate.


School-Sponsored Prepaid Tuition Plans

Unlike state-sponsored prepaid tuition plans, school-sponsored prepaid tuition plans are relatively common nationwide: 158 schools in 34 states (including the District of Columbia) offer this type of plan.  Of these 158 schools, more than half (59 percent) are private colleges or universities.  School-sponsored prepaid tuition plans are fundamentally different than those sponsored by the states because they only allow prepayment of tuition just prior to the start of enrollment, rather than many years in advance.  


Schools that sponsor prepaid tuition plans can establish their own program criteria and eligibility requirements.  Most schools require full-time enrollment and may not accept students who receive certain forms of financial assistance.  Some schools require the entire cost of tuition for the intended degree program to be paid in a single installment.


 

Need more information?  

Here is a complete list of colleges that offer prepaid tuition plans.

 

Very few schools publish information online regarding their prepaid tuition plans.  Therefore, to find out more information on the prepaid tuition plan for a specific school, your best bet is to contact the school directly.