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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Best of Blogs for Week of July 4th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week


Dough Roller answers DR 082: How Much Should You Be Saving for Retirement?
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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?
Yes

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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Accidentally posted some Unfinished Articles

If you're a frequent reader you may have noticed several half finished articles were published earlier today.    I accidentally allowed those to go from draft out to published status.   I've reverted them back into draft mode.   Sorry for any confusion...

I've still been pretty busy at work and my personal life.   I'm working on turning over a vacant rental (the topic of one of the barely half written articles).    So sorry that I haven't been publishing regularly.     I hope to get back up to speed on some articles soon.  

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