July 6, 2014

Is the Florida Prepaid Tuition Plan a Good Deal? (UPDATED)

I'm doing a series of articles looking at the prepaid tuition plans for the individual states that currently offer such 529 programs.   Today I'll look at the Florida Prepaid College Board plan.

[edit updated 8/11 :    When I first wrote this I was unaware of recent law change in FL that makes this plan significantly more affordable.   They've actually cut the cost of buying into the plan by about 30-40%.   That makes the plan much better deal. ]

How does the plan function?
Florida has a few options within their prepaid tuition plan.  You can buy 4 years at a college, 2 years at a college, 4 years at state university or 2+2 with 2 at college and 2 at state.   I'll focus on the 4 year state plan.   Basically for a newborn child you'd be paying current amount of  about $35,000 $53,729 and then get 4 years worth of tuition.   Currently 4 years of tuition at University of Florida runs about $26,400.  You can pay in a lump sum or make equal payments over 5 years.   Also apparently if you move out of state you still qualify for the instate tuition rate in Florida which might be a good benefit for certain people in particular situations for that benefit alone.  Like for example if you are moving to a state without a good public university system or with relatively high instate tuition.

Is there a good return on investment?
Not really.    Lets assume that tuition goes up 7% a year.   To beat the prepaid plan on your own you'd only have to make over 5% 3% on your investments.  Thats not very hard to do really.   You should be able to get 4% on muni bonds for example.    Getting 5% returns guaranteed is not easy so this isn't a bad deal at all.

Are there any state tax benefits? Can you use the funds anywhere?
Florida has no state income tax so there is no tax benefit at the state level.

Is there a state guarantee?
Yes the plan is backed by state law.   If the plan is terminated then anyone within 5 years of college is guaranteed all promised benefits.

Is it financially solid?
Yes the FL plan is pretty solid.   It has an actuarial surplus.  From the last annual report :
"the Trust Fund has 12.1 billion in assets and liabilities of 11.6 billion resulting in an actuarial reserve of $569 million as of June 30,2012"

Summary :   The plan is in good financial shape and backed by the state government but the up front cost is too high and you're better off investing on your own.    With the new cost structure the plan is a fairly good deal financially.   Yes I'd consider enrolling if you want guaranteed paid benefits.


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