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How a Private College 529 prepaid account mitigates tuition inflation, taxes, and rising education costs

PREDICTING THE costs of higher education over the next decade is like trying to forecast the weather in a year – nearly impossible! Yet, one thing is crystal clear: many families will be left to their own devices when it comes to funding their children’s college dreams. This challenge doesn’t affect just those who don’t qualify for financial aid; it’s a universal dilemma. The reality is that even with financial aid, it is often insufficient to cover the full expenses of higher education along with the additional costs associated with earning a degree. The statistics clearly demonstrate this financial gap. The average student debt per borrower at graduation soared to $30,600 in the 2019–2020 school year. Collectively, Americans with student debt now owe a staggering $1.73 trillion across both federal and private student loans.

Private College 529 is a simple, prepaid tuition plan that locks in current rates at nearly 300 private colleges and universities nationwide, protecting against tuition inflation. We’re the only 529 prepaid tuition plan owned by its colleges, so there are no state residency requirements to enroll and save. CollegeWell is a pioneering organization committed to transforming the landscape of college savings. Through education and financial tools, CollegeWell provides families with guidance and support to pursue the best higher education opportunities for their children.

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“It’s a bit unique in the space in that it allows folks to save at nearly 300 private colleges. It’s also the only 529 plan that’s owned and operated by the participating member colleges in the plan”

Jonathan Sparling, Private College 529

So, how can families plan ahead for college costs? While individual circumstances can influence the best approach, 529 college savings plans remain one of the most effective strategies for most people to fund higher education. Technically known as “qualified tuition plans,” 529s are state-sponsored programs designed to promote saving and investment for higher education. These plans offer significant tax advantages, similar to Roth IRAs, with contributions made using after-tax dollars and earnings distributed tax-free for qualified educational expenses. Private College 529 Plan stands out in the college savings space by offering a prepaid option that helps families hedge against future tuition hikes. Unlike traditional 529 savings plans that are subject to market fluctuations, this plan allows savers to lock in current tuition rates, on a percentage basis, thus ensuring predictable growth tied to tuition inflation rather than market performance. Jonathan Sparling, vice president of strategic partnerships at Private College 529, explains, “It’s a bit unique in the space in that it allows folks to save at nearly 300 private colleges. It’s also the only 529 plan that’s owned and operated by the participating member colleges in the plan.”

When discussing the differences between prepaid and traditional 529 plans, Sparling highlights the predictability and security that come with the prepaid plan: “In our plan, because you’re locking in today’s rates and purchasing ahead of time, your increases are really tied to tuition inflation or tuition hikes.” This structure offers a significant advantage for families looking to avoid the unpredictability of the stock market while still reaping the same federal tax benefits as other 529 plans. The plan attracts a broad spectrum of savers, from those with younger children to those nearing college age. “We also see savers seeking diversification and downside protection,” Sparling says. “Many are getting closer to the college-going age,

making their college plans clearer. They may have been saving in a traditional plan for some time, and as their child enters late middle school or early high school, they look for ways to protect against volatility.

“These savers are using the plan in the later stages to prepay and lock in rates, even if they get fewer years of locked-in growth. The trade-off is protecting against tuition increases as their plans become clearer. One of the great things about the plan is that it accepts rollovers from traditional 529 plans if people choose to do that.” Sparling further notes that many participants are alumni of private colleges or individuals looking to diversify their college savings portfolios. “We see this working very well in conjunction with a traditional plan. It provides that fixed-income solution when it comes to saving for college. You’re not exposed to market fluctuations or volatility; instead, you’re tracking tuition increases. This provides a nice balance for folks who have funds in a traditional plan and also in our plan.” Recent regulatory changes have made 529 plans even more attractive. Notable updates include the ability to use funds for K–12 expenses. This is valuable for families saving for multiple children with private K–12 expenses, allowing them to use up to $10,000 per year before college. Another significant change is the ability to use up to $10,000 to repay student loans. Many people borrow to cover college costs, so this benefit has been a welcome expansion. The most recent and notable change, effective January 1, 2024, with Secure 2.0, allows individuals to roll over unused 529 funds into a Roth IRA in the beneficiary’s name. “529s remain a preferred vehicle because it’s one of those rare vehicles where every change in legislation is for the better,” Sparling remarks.

“We see this working very well in conjunction with a traditional plan. It provides that fixed-income solution when it comes to saving for college. You’re not exposed to market fluctuations or volatility; instead, you’re tracking tuition increases”

Jonathan Sparling, Private College 529

A common hesitation with prepaid 529 plans is the potential loss of larger market gains. However, Sparling points to the risk-free nature of the plan, which keeps up with college tuition inflation: “We would say to families the importance of that balanced approach. It’s about diversification and protection against market volatility.” Another concern is whether funds will be lost if a child does not attend a participating college. Sparling reassures that there are options for refunds or rollovers to other 529 plans, ensuring that no savings are wasted. There are also many mistaken beliefs about saving for college and its impact on financial aid eligibility. Sparling assures,

“The reality is that saving has a very minimal impact on your ability to qualify for financial aid. You do have to report any savings, including 529 plans, on the FAFSA form and the CSS Profile, but the amount counted against you is minimal – up to 5.6 percent of total parent assets are factored into the FAFSA formula and about 5 percent on the CSS Profile for parent-owned plans. “When considering the trade-off of not saving in hopes of receiving more financial aid, it’s important to note that it’s not a dollar-for-dollar switch. Additionally, new FAFSA simplification changes this year mean that distributions from non-parent-owned 529 plans, such as those owned by grandparents, aunts, or uncles, are no longer counted against the student.”

Distinguishing features of Private College 529 Plan

Addressing misconceptions through knowledge and education

Distinguishing features of Private College 529 Plan

Addressing misconceptions through knowledge and education

Published August 12, 2024

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To further support and educate clients, Private College 529 Plan has launched CollegeWell, a broader educational brand aimed at providing expert guidance on college savings and financing. “We wanted to create a larger education-focused brand that would really provide expert guidance about the college savings and financing process directly from the experts,” Sparling explains. CollegeWell collaborates with financial advisors to offer joint education sessions, webinars, and other resources to help families navigate the college planning process. Sparling details, “About three years ago, we started to conduct deep market research and found many misconceptions about college costs,

savings, and the college-going process. Recognizing our unique position with our nearly 300-member private colleges, and our relationships with financial advisors, we knew we had an opportunity to help families prepare for college expenses down the road." Undoubtedly, there’s a pressing need for education on 529 plans, as many US adults remain unaware of their benefits. Despite the significant advantages these education savings plans offer, a new survey by Edward Jones and Morning Consult highlights a substantial knowledge gap. Among the 2,202 adults surveyed, half did not know what a 529 plan is, and fewer than a quarter actually use one. This underscores the importance of increasing awareness and understanding of 529 plans to help more families take advantage of these valuable savings tools. Moreover, in the last 20 years, tuition and fees at private national universities have increased by about 40 percent. By the time your college-bound child or grandchild is ready to attend, college expenses could feel like trying to scale a skyscraper. Prepaid tuition plans offer a solution by letting you secure today’s tuition rates for future education, providing a reliable way to manage these rising costs. Sparling finds purpose in working with families at an organization helping families get ahead. He says, “It’s better to plan earlier than to have these conversations at the end.”

$298,648

$170,000

$128,648

Tax-free savings

Projected value of the prepaid tuition

Superfund amount

Tax-free savings after superfunding a prepaid 529 account with Private College 529 Plan

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

* Above example assumes opening an account for a beneficiary that is 5 years old and 13 years of tuition increases. ** Assumes a 4% tuition and fee increase year to year. *** Based on the average tuition and mandatory fees for all colleges participating in Private College 529 Plan ($46,903 in 2023/2024). Example is for illustration purposes only.

Private College 529 Plan

Participating colleges bear all financial risk and are contractually obligated to honor prepaid tuition for up to 30 years.

There are nearly 300 participating schools from coast to coast. Clients don’t select a school until the student is admitted and enrolls.

Every dollar deposited buys tuition at current rates. There are no fees for clients.

Private College 529’s value is linked to future tuition increases, not investment markets.

Like all 529 plans, PC529 earnings are federal tax-free if used for qualifed expenses. And contributions are completed gifts qualifying for gift tax exemptions.