Schools weigh in on tuition-saving through Independent 529 Plan

A new tax-free, prepaid tuition plan has been introduced that allows parents to save for college and pay lower tuition.

But Tufts has decided against joining the plan because administrators claim it limits students' college choices and negatively affects their financial aid eligibility.

Known as the Independent 529 Plan, the savings scheme was launched in September by the nonprofit Tuition Plan Consortium (TPC) and is managed by TIAA-CREF Tuition Financing, Inc. The plan allows people to purchase future years of tuition at member institutions -- there are more than 220, all private -- at discounted current prices, protecting them from ballooning college costs.

For instance, contributing $10,000 buys a full year of tuition at a similarly-priced school or half a year at a school whose tuition is around $20,000, although plan members do not have to choose a school until a the beneficiary is admitted. Participating institutions are also required to offer enrollees a discount of at least half a percent of annual tuition costs (the program does not cover room and board).

"It's like buying a shopping certificate for use at any of the stores at a mall," explained Doug Brown, TPC's chief executive.

Member schools include Skidmore College, Wellesley College, and Berklee College of Music, and members of the Five-College Consortium in western Massachusetts. Princeton is the only Ivy League school that has joined.

"As private institutions are constantly under pressure to keep costs down, finding a savings vehicle for families with a discount was the incentive," said Basil Steward, the controller at Smith College in Northampton, Mass. Smith, a member of the Five College Consortium, has signed onto Independent 529.

Steward said Smith is committed to letting qualified students attend the college regardless of income. "Independent 529 is a good fit for Smith," he said. "It guarantees you pay less."

"It can be a win-win situation for both the parents and the college. What the families would have to do is some forward-looking thinking, ten years or 15 years from now, where your child would be."

But Patricia Reilly, Tufts' director of financial aid, said the University did not join the plan because it restricts college choices and, like most college savings plans, it can reduce a student's eligibility for financial aid.

"I'm not comfortable steering parents to a plan. Having the plan can hurt you," she said.

Students who have a college savings plan are less eligible for government grants and loans, although recommendations to the Reauthorization of Higher Education Act may change the way financial aid is determined. Reilly said Tufts may join Independent 529 if the government changes its regulations.

The Independent 529 plan is only valid at member colleges, but Steward argued that the lack of flexibility is not necessarily a problem since the contribution to Independent 529 Plan is transferable.

"Even if your son or daughter decides not to go to a member institution, it can go to a nephew or a niece, or you can transfer it to another 529 plan," he said.

Alternatively, savings plan members can cash out, there is no guarantee that they will recoup all of their original investment and returns are capped at two percent for every year the tuition certificates are held.

Most other college savings plans offer higher returns and last year college tuition jumped by six percent on average.

Boston University is also a member of the plan. BU spokesman Collin Riley said the university decided to join because "the ability to pay should not be a barrier to education" and said the university supports "anything that will help parents pay for their children's education."

He added that it is important for parents to think about financing their children's education early. "All those programs out there that provide tax benefits and other incentives are a very good thing," he said.

Reilly recommends that if parents do choose to use a college savings plan, an unrestricted plan is best.

"It's tax-free and gives flexibility in terms of what school the student can go to," she said.