The U.Plan Prepaid Tuition Program and COVID-19
The global pandemic has had a substantial impact on families across the country. Because of COVID-19, many families may be re-examining how to manage their finances, particularly when it comes to saving and paying for college. We at MEFA have received a number of questions regarding saving and paying for college with the U.Plan Prepaid Tuition Program, and what saving and paying within this unique program looks like during this time. Here are some highlights:
Are college tuition costs decreasing? Would the U.Plan be a good savings vehicle if college tuition stays the same or decreases due to COVID-19? What would a tuition decrease mean for my lock-in? Does it make sense to put more into the U.Plan this year if tuition remains the same or has decreased?
A lot to unpack here, but first and foremost—it appears that tuition at most colleges is not significantly decreasing (if decreasing at all), particularly for those colleges that participate in the U.Plan. Many colleges have not changed tuition from the 2019-2020 academic year, and the trend appears that most colleges will not have an increase in tuition for the 2020-2021 academic year.
As far as saving with the U.Plan Prepaid Tuition program, it is important to understand that when you save money in the U.Plan, we'll calculate the percentage of current tuition and mandatory fees that your savings amount covers in each of the participating U.Plan schools. That percentage stays with you, so when it comes time for your child to attend college, the dollar amount you have saved will equal that same percentages of those future tuition and mandatory fees. Under this methodology, a dollar amount saved in a year where tuition and fees do not increase could mean that those who save this year may essentially get an extra jump in college savings by locking in the tuition percentage without the traditional year-over-year increase.
If my child is going to college this year, are my U.Plan earnings worth less if tuition is reduced?
As mentioned, most schools that participate in the U.Plan did not decrease tuition this year. If a school did decrease tuition slightly from the 2019-20 academic year, your U.Plan earnings will still serve you well, as the overall cost of tuition will have still increased from the time you invested in the U.Plan. Let's say you saved $5,000 in the U.Plan 10 years ago, when the cost of College A (tuition & mandatory fees) was $10,000. At that time, you locked in 50% of tuition & mandatory fees. Fast forward to this year, where the cost of College A has risen to $20,000. With your 50% lock-in, you'll still have $10,000 to spend on tuition & fees. Even if the cost of College A was slightly higher last year, let's say $21,000, you're still benefitting from your savings in a big way.
As always, MEFA encourages all families to discuss their personal financial situations with a professional financial advisor before making any major changes to the way you are managing your finances. But, if you have specific questions about saving in the U.Plan, we are always here to help. Reach us at firstname.lastname@example.org or (800) 449-MEFA (6332).