Word of the Day Wednesday: Prepaid
Each Wednesday, MEFA features a Word of the Day, where we highlight a word (or sometimes a phrase) related to the college planning process. This month, we're focusing on vocabulary related to the U.Plan Prepaid Tuition Program.
Today's Word of the Day is prepaid.
The U.Plan is a prepaid tuition program, and the word "prepaid" literally means paying now for future college expenses, specifically tuition and mandatory fees. By prepaying today, you'll lock in today's rates for tuition and mandatory fees at all of the over 70 participating colleges and universities in Massachusetts.
Year over year, your contribution into the U.Plan will lock in a percentage of tuition and mandatory fees at every participating school. Your percentage will vary at each school, based on your contribution amount and the current tuition and fee rates at each college. When you contribute, we document your percentage, and when it comes time to pay for school, your total locked-in accumulated percentage will be used to calculate the amount of tuition and fees you have covered at every school.
As an example, suppose it currently costs $10,000 for tuition and mandatory fees for one year at a participating college. If you deposited $5,000 into the U.Plan, you have prepaid 50% of that school's tuition and mandatory fees for one year. Fast forward to the future: if that college's tuition and fees cost $30,000 when your child goes to college, your $5,000 prepayment is now worth $15,000 (50% of $30,000).
To get an idea of how lock-in percentages will differ among the participating U.Plan schools, view our list of participating U.Plan schools.
Why does this matter to you?
By prepaying for college costs in the U.Plan, you not only provide yourself savings to use in the future, you also guarantee yourself a lower tuition rate than if you hadn't saved. Additionally, the U.Plan is different than a typical college savings account because your funds are invested in general obligation bonds and not in the stock market. You know the percentage of tuition and mandatory fees you'll have covered at the 80 participating colleges and universities as soon as you enroll in the plan. By locking in a percentage of tuition and mandatory fee costs, you're guaranteeing that a specific portion of future college costs are covered, no matter how much they increase by the time your child goes to college. And if the child does not attend a participating college or university, you get your money back plus interest and no tax penalty.
For more information on the U.Plan, visit our dedicated U.Plan webpage.
Angelina Mancini joined MEFA in 2006 as a member of the Customer Service team and now serves as Manager of Early College Planning. She currently works on the administration of the U.Plan and the U.Fund, assisting families with account service and giving college saving presentations across the Commonwealth.