July 3, 2014

Is the College Illinois! Prepaid Tuition Plan a Good Deal?

NOTE this article is a few years old now and the details of the program may have changed.  Make sure to investigate the program current status and rules.

I previously discussed  Pre-Paid Tuition 529 Plans in general.  I'm going to start a series of articles looking at the prepaid tuition plans for individual states that offer them.   Each state that does a prepaid plan has different rules and they all work differently so you really have to look at them individually to know if they're worth using or not.

First up I'll look at the College Illinois! prepaid plan.

How does the plan function?
Illinois has a few options to buy semester credits at community college or university level.   You can also combine community college and university.    You can pay with a lump sum, monthly or annual payments.

Is there a good return on investment?

You can use their calculator to figure costs.  For the University Plus plan buying 8 semesters for a newborn would require a lump sum payment of $99,720.   Current tuition rate at University of Illinois is $16,898.   If you assume that tuition goes up by about 7% a year then you'd have to beat 5% a year on your own to out perform the IL prepaid plan.   This is an OK benefit.

Are there any state tax benefits?
Yes you can deduct $10,000 a year ($20,000 for a couple) from your IL taxes.   However you get that same benefit from traditional 529 plans in IL.

Can you use the funds anywhere?

Is there a state guarantee?
No.   The plan is NOT guaranteed by the state.   They have a rule requiring the state legislature to consider helping with shortfalls but no mandate to do so.

Is it financially solid?
Not really.    The plan is a bit short on its assets.    The last actuarial report said it was 73% funded as of June 2013.   So its about as good as Social Security funding which everyone assumes is doomed.

Summary:    I would probably avoid this one.   The return is OK for a guaranteed investment however there is no backing by the state and the plan is currently underfunded.


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