Private schools offer alternate 529 plan

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When most people think of 529 plans, the various state-sponsored programs that help families put aside money for future college costs most often come to mind. But there is a lesser-known version sponsored by a consortium of private colleges and universities.

The Private College 529 Plan is a pre-paid account available for private school tuition, which allows families to minimize the effects of rising tuition costs by locking in future college costs at today's prices. The plan is owned and operated by the 270 private colleges it serves, 26 of which are in Pennsylvania.

Unlike traditional 529 savings plans that allow families to save by investing in stocks and bonds, one of the keys to the Private College 529 Plan is that none of the money that families contribute to the account is exposed to any risk in the financial markets.

"There were a lot of families in 2008 and 2009 who had 529 savings plans, and they woke up in July before junior was going to go to college and had lost 20 to 30 percent of the value in some cases," said Nancy Farmer, president of the St. Louis-based Private College 529 Plan.

The 270 private colleges in the consortium assume the risk of rising college costs and promise to honor today's cost of tuition no matter how much it rises in the future.

The majority of people use traditional 529 savings plans sponsored by state governments and marketed by Wall Street broker-dealers. By comparison, there are only about 6,500 different families signed up for the Private College 529 Plans who own about 8,500 total accounts.

Ms. Farmer was in Pittsburgh last week promoting the small, but growing nonprofit organization that will celebrate its 10-year anniversary in September. She said December can be a good time to open or contribute to the Private College 529 Plan as families begin thinking about year-end tax strategies.

All 529 plans have federal tax advantages. The increase in value for such savings plans is federal tax-free. Pennsylvania taxpayers are allowed to deduct up to $13,000 for any 529 plan sponsored by this state, other states or the Private College 529 Plan.

Although many traditional 529 savings plans now offer a fixed asset option to limit the risk of stock market losses, those fixed asset contributions would be held in money market funds that don't stand a chance of keeping pace with college tuition increases. With the Private College 529 Plan, savers get a return that is purely based on inflation.

Assuming that tuition and fees for Carnegie Mellon University totals $45,000, if a family contributed $15,000 to the Private College 529 Plan this year, they would own a third of a school year even as tuition costs go up over the years. If tuition and fees increased to $60,000 by the time the child was ready to attend CMU, the family would already have a credit of $20,000, which is one third of $60,000.

According to the College Board, the average annual price for a private college in 2011 was $36,000 and, given inflation, a private college education for today's toddlers could cost $100,000 per year.

The Private College 529 Plan only covers tuition and fees. Room and board are separate costs.

Once families put money into the Private College 529 Plan, their investment is no longer given a dollar value. The statements they receive from the plan will reflect how much tuition they own at the five colleges they have chosen. The system can be a bit complicated, but the good news is the calculations are done automatically by the plan each time families make a contribution.

If a child decides against attending a private college in the consortium, all the contributions can be withdrawn. Parents can even rename the beneficiaries of the Private College 529 account as long as the beneficiaries all come from the same family.

"We are trying to get the message out that whatever you can prepay today will help you save on the cost of a college education," said Ms. Farmer, who previously served three terms as a state representative in Missouri and one term as state treasurer of Missouri.

While there are hundreds of websites on saving for college, Ms. Farmer said the Private College 529 Plan recently launched a new website -- www.TomorrowsTuitionToday.org -- that she hopes will make it easier for families to navigate their different options for college choices and paying for higher education.

"Whether families choose to utilize our program exclusively, decide that an alternative plan best suits their needs, or some combination of the two, we want to help increase awareness of the long-term financial planning that is required in today's economy to ensure that a higher education is attainable for as many families as possible."

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Tim Grant: tgrant@post-gazette.com or 412-263-1591.


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