For the future.....a 529 plan

At last, we have come to the final chapter of seemingly unending problem in our society, high costs of colleges and universities.

In my last post, I have mentioned two respectively different, but similar, Free College Act proposed by presidential candidates Hilary Clinton and Bernie Sanders.

However, these plans may sound highly innovative and tempting, they may be disastrous.
Sen. Sanders once established the need for free public college by saying, "in a global economy, when our young people are competing with workers from around the world, we have got to have the best educated workforce possible. And, that means that we have got to make college affordable."

But... wait a second, don't you think producing the best workforce possible foreshadows over-saturation of job markets??
What impact of free public college would have on the delivery system of higher education?
Does it necessarily mean that higher education be more efficient and prospective?


Because we are living in a decentralized system where we can take as much student aid as possible in regards to our choices of institutions, we are able to have variety of options when choosing colleges and programs. But think about the situation where those choices no longer exist due to free colleges, which make private colleges tough to survive. Since those colleges are free, can we be 100% that we are receiving the best QUALITY of education out there??

I do not think so.

Enough debating the shortcomings of alternative plans that weigh the value of today 100 times more than that of tomorrow, let's seek some "real" solutions for our sake.

There are a couple of solutions that are practical as to a solution for the high costs of colleges. There has been a case when something called a "Prepaid college tuition" was introduced back in 2008. 

What is a prepaid college tuition? 

It is one of the different types of a 528 plan that provides tax benefits in order to encourage saving for future college costs. It is named for Section 529 of the Internal Revenue Code that authorized it. This plan is  exclusively sponsored by states, state agencies, and educational institutions. Basically, a prepaid tuition plan gives one incentives to save by holding credits in current tuition prices. According to an article dedicated to pros and cons of a 529 plan, it states that college tuition costs increase with an annual rate of 8%. Meaning the average cost of one year at an in-state public institutions like PSU would cost around $19,288 for tuition, fees, boarding. It also scares us with the fact that if tuition rate increases continually at the current pace, a newborn baby born in 2016 will pay approximately $77,475 for her first-year in PSU, a public college. In fact, colleges in  such states like Colorado and California, they have raised their tuition 10%-12% and 10% to 30% respectively!!

Wow.... $77,475 and a 30% increase... that is why a lot of pensive parents are throwing every single penny they got in to a jar called, a prepaid tuition plan. Now wonder why it is so appealing to them.Subsequently, for parents who already bought either a year worth or years' worth of tuitions at current prices are guaranteed  paying the same amount despite increasing tuition rates. 

Another type of a 529 tax-benefit program is called, a college savings plan. For this one, you establish an account and choose among investment options, including stock mutual funds, bond mutual funds, money market funds, and age-based portfolios that automatically become more conservative as the beneficiary gets closer to college age (College Savings). However unlike a prepaid tuition plan, the values of mutual funds and bonds tied up with a college savings plan are not guaranteed by the states nor state agencies.

Moreover, states implementing a 529 plan provides tax advantages as a means to tax returns. Participants of it only applicable to this benefit.So as of moment, the state of Florida has officially encouraging its habitants to participate in 4-Year-Florida-University Plan. And there are unique clauses guaranteeing refund under two circumstances: a) when the child receives a scholarship b) giving 10 years from the projected year of college enrollment to use 4-year plan. 

In University of Illinois, there are more than 28,000 students who have attended college as beneficiaries of a 529 plan.

While a 529 plan sounds as the ultimate answer key to solve the skyrocketing tuition costs, there are some drawbacks. First, it can only be used for member colleges, and funds invested in a state-run prepaid plan can only be used at full value to pay for tuition (Cons of a 529 plan). Furthermore, the prepaid plan might be fragile in terms of security. As mentioned above, like Florida or Illinois, when they confront a budgetary shortfall, those who have participated in college saving programs might get struck.

Tim Higgins, the authors of "Pay for college without sacrificing your retirement" commented with a highly skeptical view that how can a 529 plan will keep up with 7-8% annual increase in tuition inflation (Bankrate).

Overall.... once again, a 529 plan seemed to be an ultimate answer key that can finally release us from the unending suffering of skyrocketing tuition costs, it will never be the permanent answer, extremely temporal. Therefore, people are being attentive to vocational schools stating the fact that only 40% of the total labor force in the United States have earned a four-year college degree (American Community Surveys). Eluding some highly saturated markets, such as business and tech industries, recapitulating the uniqueness of vocational occupations.


It has been a long journey from the beginning trying to analyze certain causes of high costs of tuition to possible solutions to responses of those countries facing the same problem to political answers to it to the most practical solution that has already been implemented or seemingly the most plausible.

I really do appreciate all of you who have been following and commenting!


Comments really encouraged me to convey the most recent and accurate information out there for yours sake. I'm getting sad that this will be the very last blog that I will be doing in this class, but it was an AMAZING journey, and I have learnt a lot from all of you. Appreciate your interest and it's time to farewell...