Locking in prices now for something down the road is typically not worth considering when inflation is low. But now that inflation has skyrocketed, locking down a price can be a big deal.
That has become especially true for college tuition in America. Some universities are offering “prepaid” plans that let you buy credits or years of education at a set rate.
The price of everything seems to be going up in the United States. So too is inflation. The annual U.S. inflation rate was 8.5 percent as of July. With such high prices and high inflation, the idea of fixing future expenses at current levels can be appealing.
In higher education, the average annual sticker price for four-year in-state colleges has risen to $10,740; four-year out-of-state colleges hit $27,560, and private nonprofit colleges are $38,070.
“Prepaid plans are somewhat of an inflation hedge and not subject to stock market risk,” said Tom Balcom, founder of 1650 Wealth Management in Lauderdale-by-the-Sea, Florida. “Clients love prepaid plans when there is stock-market volatility since it does not impact them or their savings.”
Prepaid accounts are a small part of the college-savings market. As of June 30, about 931,000 such accounts around the country had $24 billion in total assets. Compare that to more typical 529 plans, a much larger market of 15 million accounts with $388 billion in assets.
Prepaid tuition plans are not for everyone, experts say. They are also not especially common. In fact, they are rarer these days, with only certain states even offering them.
Experts and analysts say that people looking for pre-paid college tuition should consider a few elements, including being clear about the in-state requirements. A prepaid plan limits the educational options, as it locks you into the place potentially years before you’ve even applied.
The plans are not widely available. Only nine states offer prepaid plans that are open for new enrolments. Florida, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Pennsylvania, Texas, and Washington.
Some other states like Illinois and Virginia still operate them for existing participants but are closed to new investment.
Plans also vary. Whether or not a prepaid plan is a good deal or not depends on the individual state – the quality and range of educational institutions, and pricing.
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