As a parent, what should you be doing to prepare for college? When should you start saving? How much should you save? Where do you save? What if it isn’t enough? What if you save too much and your child doesn’t go to college? What if you save the right amount for today, but in the future, the price of schools has skyrocketed? Join our community FB group to ask your questions and learn from other parents and industry experts.
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The Questions Are Endless, The Stress Compounds
There are so many questions to be answered as you prepare to provide your kids with a quality college education.
Your kids must also deal with the stress of keeping their grades at a certain level, achieving decent test scores, and participating in extracurriculars to bolster their resumes and qualify for scholarships.
They also must decide where they want to study and where they want to go with questions such as these:
- What am I interested in? What am I good at?
- Academic strengths and rigor?
- Quality of undergrad teachers?
- Development and advising? How well does the school develop students who don’t really know what they want to do?
- Graduation rate?
- Reputation of career center?
- Public or private?
- Large or small school?
- Urban, suburban, or rural?
- Maybe overseas?
- Culture and community? Greek life? Athletics?
And lurking beneath all of this: How much is this going to cost you?
This all incorporates into the concept of college fit.
Your family has a ton of decisions to make and questions that need to be answered. It’s possible you don’t even know what you don’t know. No wonder this process is so stressful!
I’d like to help alleviate some of this stress by running through the merits and downsides of the Florida Prepaid Tuition Plan.
Introduction to the Florida Pre-Paid Tuition 529 Plan
While prepaid tuition plans around the country have been disappearing or losing their luster in recent years, Florida’s 529 Prepaid Plan remains relatively popular. Many families I’ve talked to believe it’s the silver bullet of saving for college.
Of course, if you know anything about The College Funding Coach, we warn against the “silver bullet” trap. Every funding vehicle has its pros and cons, and a combination of vehicles/tactics is always encouraged in a college funding strategy.
That being said, Florida’s prepaid plan is considered one of the best in the nation. Let’s dive in.
Advantages of the Florida 529 Prepaid Plan
- Hedge Against Inflation & Market Volatility
- Offerings: You can pick 1 of 5 plans available, ranging from $54 to $181 dollars per month, depending on what type of school you’d like to fund. So, for example, you can pay $53.70 per month for a 2-year Florida College Plan for an associate’s degree or trade certificate from a state college. Or up to $181/per month for a bachelor’s degree from a state school.
- It covers alternative education paths like trade school or apprenticeships!
- Can Cover Room & Board: Unlike other prepaid plans, you can pay a little extra to cover room & board in the future by paying an additional monthly payment for an “Optional 1 Year Dormitory Plan.”
- Covers 120 Credits: The plan allows you to cover up to 120 credits.
- Tax-deferred/advantaged: If used for qualifying education expenses, you will not have to pay taxes on the withdrawals. If you do use the funds in this account for a non-qualifying expenditure, you will be taxed on the earnings portion of the account and pay an additional 10% penalty on the earnings.
- State Guaranteed: The state of Florida guarantees the money in the plan. The pre-paid plan guarantees that the cost of tuition will be covered despite increases in the cost of attendance. As unlikely as it may seem, you can request a refund for the difference if it costs less than expected to attend school in Florida.
- Does Not Affect State Financial Aid: Value in the prepaid account is not considered for need-based state financial aid (still counts in the federal and institutional methodologies).
- Convenience – pick a plan, set up auto-pay, and you’re good to go.
Most Common Questions
1. What happens to the plan if we move to another state?
One of the coolest aspects of Florida’s plan is the fact that it is NOT affected if the parents or students move out of state.
Its website states, “While Florida residency is required to purchase a Florida Prepaid Plan, it is not required to keep one. If you or the student move out of state, your plan will continue as if you never left…if your student attends a Florida College or State University, they will be considered an in-state resident for tuition purposes because they have a Florida Prepaid Plan.”
2. What happens if your child wants to attend school outside of Florida?
This may not be the best bang for your buck, as your plan payment will be based on the average weighted cost of Florida in-state tuition (which will probably be on the lower end).
In the case that you receive a tuition bill for tuition and fees in dollar amount only, Florida pre-paid will pay for the average rate of 15 credit hours at a Florida public college or university that the beneficiary has under their plan.
If you are billed by credit hours and dollar amounts, Florida Prepaid will pay the total credit hours at the average rate of a credit hour at Florida public colleges or universities. There is also an unrestricted payment option where your plan will pay the total dollar amount that was invoiced up to the total plan value.
Disadvantages & Qualifications
- Residency: The enrolled child or parent must have resided in Florida for the past twelve months.
- We Can’t Predict the Future:
- If your child decides to go out of state, your plan will pay for some of the credits based on a formula at the time of attendance and the cost of the school.
- If your child does not attend college or trade school, you can get your money back; however, any growth in the account from market performance isn’t reimbursed. (e.g., all that interest on investment is wiped out).
- If your child attends a four-year university, but you were on the two-year plan, you are left to cover the gap.
- Not as Flexible as a 529 Savings Plan:
- Especially if your child wants to go to private or OOS schools.
- Dormitory plans are only for specific schools/college housing.
- You must pay a minimum monthly or annual contribution.
- Investment Returns Will Not Be Impressive: 529 savings plans have the potential to provide a much bigger return but at greater risk. If the market drops precipitously when you need the money or inflation is out of control, that’s where the prepaid plan gains the advantage. It may make sense to combine a prepaid plan with a savings plan. More flexibility in the future, especially if you have multiple kids.
- No Tax Deduction: Florida has no state income tax to deduct. Therefore, it may behoove you to combine the prepaid tuition plan with another state’s 529 savings plan with historically good performance and low expenses.
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For more FAQs and information on how the Florida prepaid tuition plan works, check out the official website here.
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Final Thoughts
There is no silver bullet for each family to pay for college. There is no magical way out.
The truth is that the college funding strategy for each family will differ depending on many factors. General answers don’t really apply here.
We can say that a safe bet to fund college involves a multifaceted approach that considers tax strategies, assets & financial aid strategies, cash-flow strategies, and more to save for college.
This usually involves a combination of tax-advantaged savings vehicles and a college selection strategy that doesn’t break the bank. This will provide growth, flexibility, and peace of mind no matter what your child decides to do in the future.
Join one of our free Little-Known Secrets of Paying for College workshops to learn more about saving and paying for college without jeopardizing your retirement.
If you have already attended one of these events, consider diving deeper and signing up for a free consultation with one of our coaches. Our coaches attack the “paying for college problem” with a hybrid assault based on college funding industry expertise and sound financial planning.
Author:
The College Funding Coach
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