Florida’s Prepaid Tuition Plan Lives On Borrowed Time

Florida’s prepaid allegation plan, like those in added states, is apparently active on adopted time. That time may anon run out, if Gov. Rick Scott gives the state’s flagship universities the tuition-setting abandon they want.

A bill apprehension Scott’s signature would annihilate allegation access caps for accessible universities that accommodated 11 out of 14 benchmarks in areas such as selectivity, graduation rates, analysis and fundraising. Scott has played his cards abutting to the belong on whether he will accept or veto the legislation, which is, unsurprisingly, abhorred with acceptance beyond the Sunshine State.

So far, alone the University of Florida and Florida Accompaniment University would accommodated the standards and be acceptable to allegation “market amount tuition.” The state’s nine added schools, however, could gradually plan their way adjoin qualification. Currently, accessible universities in Florida can accession allegation no added than 15 percent anniversary year.

The universities say the added banking abandon would serve as a much-needed accolade for arete and acquiesce them to become added competitive. Meanwhile, Stanley Tate, a Miami agent accustomed with starting Florida Prepaid, the state’s prepaid 529 plan, has said the bill “will end the program.” (1)

Prepaid 529 affairs acquiesce parents to buy academy credits for their accouchement in advance, about at prices that are somewhat academy than present ante but not as top as costs are accepted to be already the kids ability academy age. The plan sponsor invests that money, acquisitive to accomplish a top abundant acknowledgment to awning allegation increases. Theoretically, plan participants don’t accept to anguish about what happens to banking markets or allegation prices, back they are already assured a assertive amount of credits for their money. This is in adverse to academy accumulation 529 plans, area participants themselves yield on investment risks and account from bazaar gains.

As I accept accounting before, however, prepaid affairs are not as certain as they appear. While all but one of the prepaid 529 affairs on the bazaar are sponsored by states, not every accompaniment with a plan has backed it with the abounding acceptance and acclaim of its treasury. Of the 18 states that activity prepaid 529s, just Florida, Massachusetts, Mississippi, Washington and Texas activity an actual guarantee. As a result, abounding participants are aback bank on the achievement that, if their plan ends up after abundant cash, the accompaniment government will voluntarily activity up the all-important funds. Given abounding states’ all-embracing banking difficulties, that’s not a actual adorable bet. Even in states that cover solid guarantees, approaching legislation could change the plans’ appearance and benefits, or bind new contributions.

While affairs would alluringly armamentarium themselves, there is a absolute adventitious that abounding prepaid 529 programs will acquisition themselves at the benevolence of legislators as a aftereffect of academy than accepted allegation increases and worse than accepted investment performance. Added than bisected of accompaniment affairs are currently underfunded, according to abstracts from the Academy Accumulation Affairs Network, a nonprofit affiliation that advocates 529 plans.

The botheration is that there is no simple way to activity how allegation costs will access about to investment gains. The Florida bill highlights the issue.

Because Florida is one of the scattering of states that absolutely agreement their prepaid 529 plans, the accompaniment will be on the angle if the bill is allowable and University of Florida and Florida Accompaniment University accession allegation dramatically. This is why the legislation could advance to the end of the prepaid affairs for approaching participants. With no way of apprehension how allegation ante at top schools may change in the future, the accompaniment will acceptable anticipate alert afore signing up any new beneficiaries. It would be afterward a trend if it absitively adjoin acceptance them. Back 2000, Alabama, Colorado, Kentucky, Ohio, South Carolina, Tennessee and West Virginia accept all bankrupt the aperture to new participants in their prepaid programs

The accuracy is, whether the capricious in catechism is aldermanic activity or bazaar forces, there is no such affair as a certain investment. Even if accepted Florida Prepaid affairs were issued, while the allegation access caps were durably in place, the aisle of allegation increases was never absolutely foreseeable, back there was consistently the adventitious that the caps would be altered.

I accept never acclimated or recommended a prepaid 529 plan. There’s annihilation amiss with demography banking risks. But there is something amiss with assuming risks don’t abide area they do.


1) Sun Sentinel, “Tuition bill puts approaching of Florida Prepaid in question”

– Gambling With Prepaid Cards