With college costs skyrocketing, every parent is concerned about paying for a child's education. Thus, to the rescue comes this program, which guarantees to pay for a child's tuition. All you need to do, the bureaucrats say, is pay a certain amount of money to various states that run this program — either in a single lump sum, or as a series of monthly payments from now until your child reaches age 18. If you participate, the state assures you that your child's tuition will be paid. Just rely on us, says the government, and you'll have no more worries... But wait!
The plan covers only tuition, NOT room and board. Why is this significant? Because room and board accounts for 50% to 60% of the total cost of college at a state school. Since the plan doesn't cover these expenses, guess who does when Junior heads off to school? .... and it gets worse...
The program does not guarantee that your child will be accepted to a state college. Instead, your child must apply, just like every other applicant. What happens if your kid doesn't qualify — or simply doesn't want to go to a state school? The state will contribute to tuition at an out-of-state college, but only the lower of a) undergraduate tuition and fees at a Virginia state school or b) the payments you have made plus a modest rate of return. Since out-of-state and private schools are more expensive than in-state public colleges, obviously there will not be enough money to pay the full cost. Again, mom and dad will be left holding the bag... and still more...
If you cancel the program for any reason, you'll be a big loser. If you cancel in less than 3 years, the state government will return your investment to you, but with no interest. If you participate 3 years or longer, you will earn a modest interest rate, but you will need to pay taxes plus a 10% penalty on interest earnings.
For these reasons, you'd be smart to reject this program. Instead, take any money you plan to save, and place it into stock or balanced mutual funds. If your child is under 14 years old, use stock funds. If your child is over 14, use balanced funds. It is far more likely that you will end up with much more money than if you were to participate in the government's plan. Not only that, you will enjoy complete control and flexibility over your assets: If the child doesn't go to college, you keep the money; if he wants to go to another college, you have the money; or if he gets a scholarship, you can use the money for other purposes. |
