March 28, 2012

Prepaid Tuition Program Comes With Fine Print

Eileen Norcross

Senior Research Fellow
Summary

As long as tuition continues to rise faster than the rate of inflation, this kind of prepaid plan may prove unsustainable.

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As Alabama residents face the possibility of the Prepaid Affordable College Tuition (PACT) Program running dry in the next 4 years, we’re finding that prepaid plans aren’t the bargain we originally thought.

It’s upsetting for participants, because it turns out that the fine print on this program is pretty important.  People were taking a risk that they weren’t even aware of.

These plans allow parents to purchase contracts for their children’s education by locking-in tuition for the current year for eligible in-state colleges. But given the rapid increase in college tuition, it’s easy to see why so many plans have gone bust.

Going forward, we may have to accept that these types of plans are not feasible.  As long as tuition continues to rise faster than the rate of inflation, this kind of prepaid plan may prove unsustainable.