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locking in

i received a generic newsletter from my insurance company the other day. you know, tips on retirement strategies and fund investments and life insurance, crap like that. also included was a section on saving for your kid's higher education. and though i have no children of my own nor am i anywhere near having children of my own, i am a thorough kind of gal so i read through it over my cereal the other morning. okay, okay, take advantage of compounding interest, 529 plans, your run-of-the-mill sort of stuff. and then i got to point #4:

Look into prepaid tuition plans.

Many colleges and universities now allow you to start paying tuition years before your child is admitted, essentially "locking in" tuition at current rates. This is a particularly good idea if your heart is set on sending your child to your alma mater.

are you kidding me with this?

trust me, i understand that having your parents send you, or even help send you, to college, is not something to be taken for granted [thanks, mom and dad!]. but seriously? "if your heart is set on sending your child to your alma mater"?

i am appalled. i can't possibly think of a better way to cause your kid to happily attend your alma mater's rival school.

Posted on Monday, September 11, 2006 at 10:16PM by Registered Commentermdog | Comments6 Comments

Reader Comments (6)

That would have worked well in my family. But we didn't know that until 5 months before I started school.

What's in it for universities? Are they banking on the fact that most students are not actually going to go where their parents want them to, so they get money for nothing?
Sep 11, 2006 at 10:46PM | Unregistered Commenterkt
Maybe there's another motivation for parents here: if you prepay your child's college education, does it guarantee him a spot at that university, whether or not his grades would qualify him?

Also, I've heard of similar things happening....at Taylor, I knew students who attended because it was the ONLY college their parents would pay for. This did not endear them to the college or their parents. It only taught them the power of bribery.
Sep 12, 2006 at 08:46AM | Unregistered CommenterJennifer
I don't understand that sentence about sending your child your your alma mater.... it seems like it would be a good idea no matter where you want to send your child, no?

Jennifer, good point. If your kid has a 2.0 gpa and 750 SAT, prepaying tuition isn't going to guarantee anything at all.
Sep 12, 2006 at 09:42AM | Unregistered CommenterTB
Very good point Jennifer. That is an interesting point.

I can't imagine doing this. It just seems insane to me. But I think in the US, we are so spoiled with "personal choice." I could rant about this, but it's not my blog.

Of course my daughter will want a superior education and so there is only one real option...
Sep 12, 2006 at 10:29AM | Unregistered Commenterpaul
I personally don't know of any funds that are tied to one particular school, but that doesn't mean they don't exist. I think most funds are either tied to state schools (and so long as your kid gets a diploma or GED, nearly all states have at least one school that will take 'em), or to a group of private schools participating by mutual agreement. The theory is that, somewhere amongst that group of private schools, there is at least one that will take your little genius. If your kid doesn't go to college, period, I don't know if you're SOL or what.
Also, if your kid qualifies for a full-ride scholarship or something like that, I don't know what happens then.

The way I understand it, with prepaid tutition, you are buying stock in an investment fund. You buy shares and the colleges guarantee that your shares will be worth a certain percentage of tuition for the next 30 years, or however long it is. So if you buy shares worth four years of tuition (the price of said shares usually being whatever four years of tuition is currently costing), those shares will always get you four years of tuition (again, within the time frame).

However, the money you've given is then invested. The theory is that, with proper investing, they will get returns that will outpace the rate at which their tuition increases. So your kid goes to college 10 years from now. You turn in your stock to that school, who then turns around and cashes that stock in. So you paid less, but hopefully those stocks are now worth more than the cost of tuition, so the college makes money as well.

I suppose you'd could be better off investing the money on your own. Then you can cash the money out, pay for your kid's tuition, and use the extra to reward yourself with an extended vacation celebrating your newly empty nest. But if you're investing on your own, and the stock underperforms, then you might be in trouble. With prepaid tuition, the college agrees to absorb any loss. Also, there is the forced savings aspect. With prepaid tution, there's no chance that you'll raid the fund when a mid-life crisis hits and you simply must have that new little red convertible.

And if any of you now go buy prepaid tuition, I believe the prepaid tuition people owe me a commission.
Sep 12, 2006 at 01:36PM | Unregistered Commentermeegs
trust me, i totally dig the financial aspect of this setup. but the article was pretty much advocating sending junior to "YOUR" school. the poor kid gets no say in the matter. i just find something really sick about that.
Sep 12, 2006 at 02:04PM | Registered Commentermdog

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