The Texas Tuition Promise Plan Explained
Saving for your child’s college education is one of the most daunting financial hurdles you will face. College costs continue to outpace general rates of inflation and they show no signs of slowing down any time soon.
As a direct response to this, a handful of states have created guaranteed tuition plans. These vary from state to state, but essentially, you buy credit hours for your child at today’s dollars that can then be used at a qualifying school in the future.
Today, we will look at “The Texas Tuition Promise Fund.”
Am I Eligible For The Texas Tuition Promise Fund?
Currently, any child enrolled in the program must be a resident of Texas OR the parent purchasing the credit hours must reside in Texas. If you fit one of these two criteria, you are eligible to enroll in the program.
The open enrollment period for the program is from September 1 through February 28. If your child is a newborn, the open enrollment is extended to July 31.
Which Universities Participate With the Program and What Is Covered?
All Texas public universities and colleges, whether a four-year or two-year institution, are required to accept the tuition credits purchased within the program.
Qualified withdrawals to pay for tuition also come out tax-free. The credits, however, are only to be used for college tuition. Common items not covered are room and board, books, lab fees, and additional miscellaneous fees like class fees or transportation costs. Note that there are other tax advantages available to cover these expenses.
What Types of Tuition Credit Units are Available and How Do They Differ?
There are three types of tuition credits available. They provide tuition coverage on a tier-based system.
- The first tier, Type 1, will cover your tuition cost dollar-for-dollar at any public Texas university or college.
- The second tier, Type 2, will cover tuition up to the weighted-average cost of all Texas public universities and colleges. This means that if the school your child will be attending costs more than the state average, you will have to cover the difference. However, should your child’s tuition be at or below the weighted-average, 100% of the tuition would be covered using the credits.
- The final tier, Type 3, works the same way as Type 2. However, it is only meant to be used for two-year Texas public universities and colleges. Below is a chart from “The Texas Tuition Promise Fund” brochure that helps explains the differences.
What Happens if My Child Does Not End Up Going to a Texas Public University/College?
There are a few options that you have if your child does not go to a Texas public university or college.
- Refund of Credit Hours at Their Value Net of Actual Earnings
To be eligible for a refund, the tuition units must have met the three-year holding period requirement. If they have not met the requirement, you are only eligible for a reduced value refund.
The earnings your credit hours have accrued are not guaranteed to be refunded back to you and are determined based on the ‘actuarial soundness,’ or the financial health, of the fund.
Lastly, any earnings that are refunded are taxed as ordinary income and come with a 10% penalty.
- Rollover the Account to Another Eligible Beneficiary
The account can be moved to another eligible beneficiary. There are two qualifications that the new beneficiary must meet. First, the new beneficiary must be a family member of the current beneficiary. Second, the child enrolled in the program must be a resident of Texas OR the parent purchasing the credit hours must reside in Texas.
- Rollover the Funds into a 529 College Savings Plan
The third option involves rolling the transfer value into a 529 college savings plan. These plans allow you to use the funds for qualified higher education expenses without paying a 10% penalty on withdrawals nor ordinary income tax on the gains.
529 plans have a broader list of expenses that count as qualified higher education expenses, like books, lab fees, and class fees, to name a few.
Is This Program Right For My Child?
There are pros and cons to every college savings program. This program can be a great fit, especially if you know you will be living in Texas and your child will be going to a Texas public university. However, we never truly know what lies ahead.
This program does allow you to refund your contributions or move them over, but the exact value is left to the discretion of the fund. All in all, you will want to weigh your options.
The College Funding Coach in your area is always willing to help you do so.
For more information & sources:
The Texas Tuition Promise Fund Website:
The Texas Tuition Promise Fund Brochure, Master Plan, & Application: https://geminifund.com/RegulatoryDocumentCenter/PublicDocuments/Current.aspx?FundFamily=Texas529Plan&DocType=TTPF-017&DisplayCommon=False&Fund=TTPF%20Literature