Economic Slowdown Impacts Prepaid Tuition Plans

Several months ago I pointed out an article where the Illinois prepaid tuition plan, CollegeIllinois!, seemed to be elated over the impacts of the economic downturn on other types of 529 savings plans.  Essentially these prepaid plans offer a guarantee of value – the cost of a semester of college at an in-state public institution per unit purchased – regardless of market returns.

However (and there’s always a however in life, right?) – as suspected, the economic slowdown has begun to impact these prepaid plans across the country, as reported in the Sound Mind Investing blog recently, with the article Prepaid college tuition: it seemed like a good idea at the time.  Essentially, the plans have made promises that supposed a certain level of return on investments; a level that has been subverted with the downturn of the economy.  As a result, in some cases the plans are being propped up by state funds (that are continually running in short supply), or imposing additional “fees” to participants in order to make up the difference.  In some cases, the plans are putting forth the concept that they may come up short of funds altogether…

I have not heard of any actions by the state of Illinois on these problems, but the article in the New York Times (referenced by Sound Mind Investing) indicates that 16 of the 18 prepaid tuition plans across the country are facing difficulties… which leads you to believe that the remaining two can’t be far behind.

Photo by Joe Shlabotnik

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Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 20 years of experience in the industry.  . Read more from this author