When prepaid college plans work
This reader story comes from Elaina. Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income.
Recently in the news I have heard more and more about the pros and cons of prepaid college plans (here, here). This type of plan allows an adult to purchase tuition for a minor and lock in the current rate, often at specific universities (e.g., in-state, public institutions). While sometimes controversial, the purchase of two prepaid college plans was likely the best investment decision my parents ever made.
My parents purchased the Michigan Education Trust (MET) for my brother and me in 1987. At the time, it cost them $7,000/child to buy 120 credits (~$58/credit). By the time I started my freshman year at my chosen in-state school in 2002, each credit cost $179.75. When my brother started at the same school three years later (and I was a senior), credits were up to $223.50. In 2011, I returned to finish a second B.A., with each credit costing $353.25. By the time we were beginning (or in) college, this seemed like an obvious investment. Looking back, buying your children college tuition at ages zero and three seems incredibly risky. Through some thoughtful and deliberate actions, our parents were able to make this investment incredibly successful. How did they do it?
1. Clear Expectations
Parental encouragement to attend college has always been a significant factor (Hossler, Braxton, and Coopersmith, 1989). For as long as I can remember, my parents asked my brother and me, “Where do you want to go to college?” This began early enough that it was an unquestioned expectation. It was documented in our “school days” books along with school pictures, friends, and interests from kindergarten through senior year. In our household; however, the question “where do you want to go to college?” was coupled with the clear understanding that our college was paid for if we went to a public university in Michigan. My parents were open to the idea that we could look into private or out-of-state schools; but, if we did that, we could not expect them to fund 100% of our tuition.
2. Frequent Exposure
As we were growing up, our parents exposed us frequently to different public universities. We went to camps, athletic events, and shows at Western Michigan University and Michigan State University. We attended Big 10 football and basketball games at the University of Michigan and Michigan State and sports camps at Ferris State, Central Michigan, and Grand Valley State. Starting in high school, we visited each and every public university in the state for a campus visit (with the exception of the Upper Peninsula). The rationale was to help us to be familiar with the campuses whether or not we decided to attend.
3. Supporting the Alternative
I knew which state university I wanted to attend on the day I began high school. My brother, on the other hand, explored both private and out-of-state schools. My parents were still supportive (obviously going to college was the main goal) but were very clear that, while MET would cover all in-state tuition, it would cover only a percentage at these other schools. In the end, he chose to attend the same university as I, although our experiences were very different. It is worth mentioning that we grew up in a small town where going to a large, in-state university was still a pretty big deal. My cousins, on the other hand, went to a larger high school where going to a private or out-of-state school was considered more prestigious.
Overall, the original $14,000 total investment equated to three bachelor's degrees. We were fortunate to attend the college of our choice without the cost of the university or the burden of loans as a factor. I went on to get a Master's degree at a small, cheaper, in-state school. My brother is currently finishing up a Ph.D in a STEM field. Our parents' investment has paid handsomely over the course of the last 27 years (and made us very grateful). Although prepaid plans will likely always be considered somewhat of gamble, they could not have worked out better for our family.