Pre-paid college tuition?
Question:
Please see below options and advise me the best two options:
a. Pay off
b. Invest in mutual funds
c. invest in stocks
d, Park the entire amount in CD
e. Save in savings
f. Just do the monthly
g. Pay half now and pay the rest monthly
Answer:
Do F and B
Pre-paying tuition is not really a good idea. You are better off investing the money on your own to keep up with inflation but what if the student does not like the school once they get there, has to withdraw for whatever reason, or is suspended? I definately would not pay it off ahead of time. Funds and stocks are great if you are talking of long term, CDs and savings are safe but lower interest. I'd go with monthly arrangements (or quarterly/semester). There's no point in paying interest if you have the cash. Don't pre-pay... just in case! Invest the money into something (short term) that gives you the best return on investment. That 5-8% will help your money go further.
Every state plan has different details to it so I can't give you a definative answer for your state. I happen to live in Florida and I know the State of Florida's prepaid plan very well because I once worked for a bank that acted as a fiduciary for the plan. It is my opinion that these plans make a lot of sense for a lot of people. The cost of college today is increasing at somewhere around 13% per year. There aren't too many investments that I'm aware of averaging more than 13%. Florida's plan will allow you to go to any public college in the state. If your child decides to go to school out of state they will pay you exactly what they would have paid you if the child had gone to school in state. If your child doesn't go to school you have the option to transfer the funds to another child, use it for your own education, or give you a refund back with a very modest amount of interest. I recommend to my clients to use a prepaid plan for tuition/books and for at least 2 years of dorms. In addition, I recommend that they save monthly in mutual funds (529 education savings plan) if they have at least 5 years until they will use the money. This is for incidental expenses. There is no advantage to paying off a prepaid plan early or paying half down. It doesn't save you interest and it will cost you the same exact amount that you would pay by doing it monthly. Stocks are not a good option unless you have at least $50 - $75k to invest so that you can diversify yourself out enough to minimize risk. CD's and savings accounts are an awful options unless the child is going to school in the next 3 years. I reiterate that the plan and options that I've described are for the State of Florida. Your state is probably different. Go to www.savingforcollege.com for great tools on saving for college. You can find tools to compare all the different state sponsered plans. Good luck
This is a question that goes to your investment objective.
Do you get to write off the interest (hope credit)?
Are you an emtional investor?
Do you worry about your debts more than your assets?
I know plenty of folks who will never invest a dollar unless they have no debt. If you think like this pay it off. If you do not then pay it off monthly, maybe more than the min payment, while investing monthly. Win Win situation you reduce your debt and you dollar cost average into an investment.
More Questions & Answers...