Prepaid tuition plans are college savings accounts that allow parents to purchase college tuition for their children in today's dollars.
In other words, they pay as if their child were attending college now even though enrollment may be a decade or more away. In the future when their child attends college, they are exempt from paying for an equivalent amount of units, even if the cost has substantially increased.
Prepaid tuition plans are a great way for parents to ensure their college savings at least keep pace with the actual inflation rate of tuition. However, since these programs only guarantee an equivalent amount of future units, a parent also loses the ability to participate in a strong stock or bond market.
While some schools offer their own prepaid tuition plans, the most widely used programs are created by individual states using a Section 529 account. Such a structure offers the potential tax benefits associated with Section 529 plans.
