Daddy Duty

Sleep, Eat, Diaper Change. Repeat.

Junior’s College Tuition

on March 6, 2012

Before I get to carried away, my wife keeps reminding me that JJ is only 3 months old. I keep reminding her that I’m a planner with a big picture outlook. As an old mentor once told and instilled in me, “If you do what everyone else is doing, you will receive everyone else’s results. If you want extraordinary results, you need to do what no one else is doing.”

At this point for me, this means considering the possibility of paying JJ’s college tuition 18 years early instead of praying for a scholarship when he’s in high school.

The idea has lingered in my head because of a meeting the other day with my good friend who happens to be a Trust Attorney and Wealth Manager. She told me that she had just pre-paid her young daughter’s tuition and told me that I could pre-pay 4 years of University in Nevada for JJ for $22,150.  There are options to either pay in a lump sum, over 5 years, or over 18 years with the installment plans incurring ~4% interest. I think it’s safe to say all parents want their kids to go to college and who can deny the fact that tuition is always on the rise. UNLV, my old stomping ground, has gone up 6% a year over the past 13 years. With that in mind, I felt this was a good topic to bring to light for the parents out there as we all seek the best opportunities for our children and who doesn’t want to save a buck.

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Here are some initial thoughts that came to mind:

  • Can you use a credit card? (That’s be a ton of miles)

Visa and Mastercard are both accepted.

  • What if he doesn’t want to go to a Nevada school?

The state will apply the then going rate for 4 years of tuition in Nevada to any accredited school in the country. AKA 4 years at UNLV is $100K in 2029, but JJ wants to go to UCLA and it costs $150K. Nevada will contribute $100K and we will need to come out of pocket for the difference.

  • What happens if he gets a scholarship to somewhere else?

Depending on the amount, you could simply cancel your plan 18 years later and receive our money back or you could transfer the plan to another child. Not having reviewed the contract, I’d be wondering if you could also sell the contract.

  • What happens if he doesn’t want to go to college?

As above, JJ would have 6 years following graduation to go to college or the plan would need to be cancelled or transferred.

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I was still comfortable with the program after that. I would have been inclined to sign JJ up as a hedge against tuition inflation with the general overview presented so far if it was as simple as that. However, I then did a little bit of web research (I still need to do more) and learned more about these types of programs and have some reservations. Here are my main concerns:

  • The Nevada funds are basically pulled into a large fund. The Nevada fund happens to be 106% funded today showing a solid performance, however, as with all portfolio performance, the markets can be volatile and this one snapshot doesn’t mean anything in a double/triple/quadruple dip recession.
  • The program is not backed by the finances and taxing ability of the state. If for whatever the reason the funds were mismanaged or had poor performance, the State Treasurer could disband the program and simply make distributions of what’s left which could be far less than 4 years of tuition.
  • Almost all states have some version of tuitions plans.  However, only FL, IL MA, MD, MI, MS, NV, PA, TX (closed for enrollment I believe), VA and WA still have pre-paid tuition plans. article here The other states are basically tax advantaged savings/investment account, but lack any assurance that the amount invested will cover future tuition costs.
  • MA has a neat hybrid plan that is based on a percentage of today’s costs that can be used at participating private and public schools. outside of NV, I think MA is the next appealing personally.
  • As much as I have loved being abroad, I can’t help but think that JJ may one day be educated in another country.

In my limited research, I believe my dream plan would have flexibility (any school), lock in tuition at today’s prices or at some premium on today’s prices knowing that what I pay today guarantees payment in the future, and is guaranteed somehow. I haven’t had a chance to look at the different states’ plans to see if there’s a match, but I’m doubtful as one other caveat is you have to be a resident of the state to join the plan (Not for 529s in general, but for 529 prepaid tuition plans).

Going back to the Nevada plan, it’s open enrollment for newborns until June 30, 2012 at these prices and will (probably) go up minimally next year in case I don’t sign up this year. I’m on the fence for now while I decide whether I can “out-invest the fund.” We have been so fortunate that our friends and family have already helped quite a bit towards paying the fee with birth presents and Christmas money, so the decision’s slightly easier to make. It would feel great and be quite satisfying to know this was already taken care of, however, with all money, it’s just a matter of figuring out it’s best use at the time. How are you planning on paying for your child’s tuition?  Money under the pillow? Pray for a scholarship? 529 plan?  Let’s talk about it!

P.S. Not that I advise this, but if you were a gambler with good credit and didn’t want to commit your money to Jr’s education, you could enroll today with a mileage earning credit card and collect the miles. Then, continue to transfer the balance between 0% interest credit cards to effectively get a “free” option that tuition will increase in price. To do this, you’d need perpetual interest free cards which are always in the mail if you have good credit. Again, I never advise this, but doing it for education and not a big screen tv seems to make a better case. If tuition never went up or you ran out of 0% cards, you could cancel the plan and be out a ~$100 termination fee, but you received an option to lock in the plan if tuition went up significantly. FYI, when banks used to pay interest, not .01%, I knew people who used 0% cash advances, invested the funds in CDs and would add thousands a year to their bottom lines for free.

P.P.S. This one is way off topic, unethical, and not even worth the time, but I present it to keep your brain flexible and to think about the opportunities. In theory, if you had a Schwab card earning 2% cash back, you could prepay Jr’s tuition, earn ~$400+, then cancel the plan minus the $100 termination fee and make $300 for an hour of paperwork.  Interesting, but unethical and not worth it.

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