Private College 529 Plan offers prepaid tuition option
Ann Marie Jakubowski | Thursday, March 7, 2013
Many students take years to pay off their loans after earning degrees, but Notre Dame offers families a way to preemptively finance their children’s higher education by pre-paying future tuition bills through the Private College 529 Plan.
Notre Dame is one of 271 institutions that participate in the plan, which sets up a risk-free method for families to anticipate college costs and finance tuition payments, according to executive director of student financial strategies Thomas Bear. Families can purchase tuition certificates at current prices that are redeemable at any of the participating institutions after three years.
“This plan is great for a family because you assume no risk. Once you lock into that price and pay tuition for future years, it’s guaranteed,” Bear said. “As a family who is going to invest, when you buy tuition [through the plan] you’re buying it at all 271 schools.”
Bear said OppenheimerFunds, Inc., manages money put into the plan and the anticipation is that Oppenheimer’s investments will make up the dollar difference in tuition between the time of the original payment and the point where the family is ready to redeem their tuition certificates.
“If they don’t make up the difference [with the investments], here’s where it’s really good for families: The institution assumes the risk, so we, the University of Notre Dame, would pay that difference,” Bear said.
To illustrate this point, Bear said if a family bought tuition at $10,000 and the school increased it to $15,000 over time while the investments only grew to $11,000, the University would assume the $4,000 difference.
“Hopefully, as Notre Dame, we want to see that investment grow to $15,000 as well so it’s a win-win-win for everybody,” Bear said. “There are years when we’ve had growth and we’ve come out even, but there are some years where we had to absorb that risk.”
Bear said Notre Dame participates in the plan despite the financial risks to encourage families to be proactive in their efforts to pay for college.
“Saving for college gives you a resource as a family so when your son or daughter is accepted, you already have options available for that child,” Bear said. “It’s not just where your child is admitted but also where you can afford to send him or her.
“We’d rather see you save preemptively, upfront, instead of trying to manage loans on the back end,” he said.
Notre Dame was one of the original schools that signed on to the plan when it began in 2006, and it has more redemptions to date than any other institution, Bear said. This means more families use their prepaid tuition certificates at Notre Dame than at any other institution included in the plan.
“Among the private colleges [in the plan], we’ve had about 99 students who have turned in their certificates,” Bear said. “Over these seven years [since 2006], that’s about 14 or 15 families per year who have taken advantage of this benefit.”
Bear attributes this success partially to the financial aid office’s work to publicize the opportunity to alumni and other affiliated families, but also to the strong sense of community around Notre Dame.
“There’s that affinity to Notre Dame from generation to generation in many families, and within that context there’s the sense that this is a great plan, so let’s go ahead and invest in it so our sons and daughters can also have that opportunity,” Bear said.
The real value of the plan comes from the fact that the investment is completely guaranteed, Bear said.
“If our tuition goes up two, three, four, five percent every year, and you have a guaranteed investment like this, you can look at that and say ‘Well, my investment is going up two, three, four, five percent every year,'” he said. “There’s no other guarantee like that out there, so it’s a very safe investment.”
Bear said the guarantee makes this investment a wise move for any family in a position to prepay tuition in this way.
“Tuition here is about $42,000 a year, and most families don’t have that to just shell out,” Bear said. “What you can do here is put down say, $5,000 this year, so you would be buying 12 percent of tuition, redeemable in the future.
“Even if you’re just putting in $200 now, maybe you’re giving up that brand new color TV, but it’s better to do that than to pay the loans off in the future,” he said.