New way to pay for Texas colleges

January 13, 2009 5:07:26 PM PST
There's a new way to pay for college in Texas, but you may have missed the announcement. There's a reason for that. The Texas Tuition Promise Fund debuted just as Hurricane Ike was making its way to Galveston. The storm is gone, but the pressure to pay for college is not going anywhere.

The key with this new plan is that you can lock in today's tuition prices for your young children. When they go off to college, you'll be paying 2009 tuition costs and you'll have avoided the inevitable college price hikes.

Right now college may seem a long way away for young kids, but sooner than most parents like to admit, the kids will be going off to school. That's why setting up some kind of savings plan is essential.

Now the state of Texas has a new way to save, it's called the Texas Tuition Promise Fund, something few moms and dads have even heard about. The plan allows parents to lock in today's tuition rate for their children.

"I think it would be absolutely brilliant," said mom Lee Nelson. "I think it would be great to have something locked in from the start and then you have security that it will grow."

According to the College Board, the average yearly tuition and fees at a four year Texas college is $6,900. If tuition continues to go up by 7% a year as it has been, in a decade, tuition could reach $13,000 a year.

"If you just set money aside for college you have two risks," said Houston CPA Bob Martin. "The risk that where you invested the money it does not grow fast enough or it does not grow at all as we have seen recently, you also have the risk of skyrocketing college costs."

Parents can put a lump sum deposit in the Texas Tuition Promise Fund for their kids, or they can make monthly payments. There are three levels of savings based on the cost of attending the most expensive schools, moderately priced schools and two year schools.

The money you put into the account is not tied to the stock market so unlike a 529 account, it will not go down in value. However, unlike a 529, the money can't grow either.

"Say for example the stock market does really well over the next 20 years, you may have done better under that alternative," Martin explained.

Losing potential growth is enough to keep some parents away from the new fund.

"It's great, however you are not going to get that upside of having it in an aggressive type mutual fund, or even a conservative mutual fund," said mom Terri Edwards. "It is still, you are not going to get that extra you might get by going that route."

The plan's enrollment period comes to an end February 28th. If you are interested in finding out more, you can find links to the plan on my consumer blog.

What if your child does not attend a Texas school, is the money lost?

No, you can use the money to pay for tuition out of state, but you are not locking in the tuition rate in other states, only in Texas. If your child gets a scholarship, you can transfer the money to another child or get it back.

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