2025 Prepaid Tuition Plans: Secure College Tuition Starting at Today's Prices

Julia Kagan is a financial and consumer journalist, formerly a senior editor for personal finance at ZAMONA.

What Are Prepaid Tuition Plans in 2024?

Prepaid tuition plans are a specialized form of 529 college savings plans that let donors pay for a student's future college tuition at today's prices. These plans help reduce reliance on student loans by guaranteeing that the amount contributed will cover tuition costs, regardless of how much tuition rises over time. Primarily designed for students attending in-state public colleges or universities, these plans cover tuition fees only.

Key Highlights

• Prepaid tuition plans allow locking in current tuition rates for future college costs.
• Funds grow in line with state college tuition inflation, ensuring coverage despite rising prices.
• Payments can be made as lump sums or through approved installment options.
• Available in only nine U.S. states and restricted to in-state public institutions.

How Do Prepaid Tuition Plans Work?

Account holders—such as parents or grandparents—pay tuition costs upfront at today's prices for qualified colleges and universities. If tuition at the chosen school increases, the plan covers the proportional increase at the time of enrollment. Because tuition inflation typically outpaces general inflation, these plans often yield better returns than fixed-income investments like bonds or CDs. Importantly, these plans are financially backed by the administering state.

Prepaid plans mostly cover undergraduate tuition, with some extending to graduate tuition. Non-tuition expenses like room and board, textbooks, and health care are excluded.

Important Considerations for 2024

Since prepaid tuition plans are state-backed, they offer strong inflation protection. However, they are limited geographically; only residents of Florida, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Texas, Virginia, and Washington can participate. Beneficiaries must attend an in-state public college or university.

Alternatively, over 300 private colleges participate in a Private College 529 Plan, which is institution-sponsored rather than state-backed.

Note:

Only nine states currently offer prepaid tuition plans to residents.

Prepaid Tuition Plans vs. College Savings Plans in 2024

While both are types of 529 plans offering tax advantages, college savings plans provide more flexibility. Unlike prepaid plans limited to tuition, college savings plans can cover tuition, books, supplies, and sometimes room and board.

Withdrawals from college savings plans are federally tax-free when used for qualified education expenses. Recent legislation expands qualified uses to include K–12 tuition, apprenticeship programs approved by the Department of Labor, and up to $10,000 in student debt repayment.

The SECURE 2.0 Act (2022) enables rollovers from 529 plans to Roth IRAs under specific conditions, allowing up to $35,000 over a beneficiary's lifetime.

Pros and Cons of Prepaid Tuition Plans

Advantages

• Protects against tuition inflation by locking in rates.
• State backing adds financial security.
• Funds can often be transferred to another family member.

Disadvantages

• Restricted to attending in-state public colleges.
• Does not cover non-tuition expenses.
• If beneficiary attends out-of-state school, refunds may forfeit accumulated interest.

States Offering Prepaid Tuition Plans in 2024

Available only in Florida, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Texas, Virginia, and Washington. Additionally, a private college 529 plan covers over 300 private institutions nationwide.

Can Prepaid Tuition Plans Be Used for Private Elementary School Tuition?

No. Prepaid tuition plans exclusively cover public college tuition within the state. For K–12 private education, college savings plans are the viable option.

Do Prepaid Tuition Plans Cover Books or Room and Board?

No. Only tuition and mandatory fees at in-state public universities are covered. Other expenses must be paid separately.

Final Thoughts

If your student aims to attend an in-state public college in one of the nine states offering prepaid tuition plans, locking in tuition costs today can provide peace of mind and financial predictability. For broader flexibility, especially if considering out-of-state or private institutions and other educational expenses, a college savings plan may be the better choice.

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