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Old 08-27-2010, 06:23 AM
 
381 posts, read 538,621 times
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I have a 3 year old in a 529 Vest Plan and I looked at it the other day and realized the market has done squat for the growth of this plan. Then I looked at the cost of education at UVA and VA tech, both which have increased by 10% this year.

Analysis:
Why am I bothering with a 529 vest plan? These tuition hikes are out of control so I am leaning toward the preapaid plan.

What are your thoughts gang? Why did you choose one over the other?
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Old 08-27-2010, 06:32 AM
 
Location: Northern Virginia
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if you can afford the pre-paid tuition plan, I'd do that. You're right, the costs are increasing every year and the market is not, so you're bound to make a good investment.
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Old 08-27-2010, 07:47 AM
 
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The basics of investing in equities whether for a 529, 401K, etc. is that you have to realize it can take years to recoup your losses. Three years is a ridiculously short time to base a judgment on whether a supposedly long-term investment is doing good or bad. You could be 20% up after three years only to be down 50% in the fourth year. So my advice to you is if you cannot stomach the risky nature of investing in equities, pull your money out.

To answer your question point blank, if you don't think your VEST investment is going to return 10% plus (or whatever your expectation is) when you'll need it, the pre-paid option might be the best for you. I don't know when you plan to draw the funds, but if you have a less than a 10yr horizon, equities might not be the best option (the S&P500 forecast seems to be for an average return of 6% or so).

FWIW, I started contributing to VEST in 2006 and I'm up 6%, but that doesn't mean anything 'cause I don't need the money now. I invest because I think 14 years from now buying low now (by consistent DCA-ing) will have helped my need. Of course, I could be totally wrong and might be kicking myself for not going with the pre-paid option. But that's the risk-rewards trade-off right there. Good luck investing.

Thanks,
K
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Old 08-27-2010, 07:51 AM
 
31 posts, read 91,708 times
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We have both for our kids, the VPEP does not cover room, board, and other misc fees. VPEP only cover the tuition. If you look at the figures, non-tuition cost is about the same or more than the tuition itself.
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Old 08-27-2010, 07:55 AM
 
Location: Brambleton, VA
2,126 posts, read 4,308,090 times
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We went with 529s for our kids. We've got 16 years or so until college, and due to the nature of my husband's work, we are only dumping money into the accounts once or twice or year. The monthly costs for the prepaid plan (two kids, four-year university) was staggering - like a second mortgage payment.
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Old 08-27-2010, 08:00 AM
 
Location: Northern Virginia
4,489 posts, read 8,808,210 times
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What happens if you get the prepaid plan, and your kid decides to go out of state? I know VA has a lot of great schools, but I also know that a lot of teens want to get as far away from home as possible at that point and see something new in the world.

I assume it transfers over at some amount, but it's something to take into consideration if it's not going to cover out of state fees or private tuition somewhere.
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Old 08-27-2010, 08:13 AM
 
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VPEP benefits can be used at any accredited college or university in the country that is eligible to participate in U.S. Department of Education student financial aid programs. VPEP benefits may also be applied at schools abroad under certain circumstances, as well as at certain accredited private career schools. VPEP benefits may be applied at eligible educational institutions other than Virginia public colleges and universities as follows: Virginia Private Colleges - Benefits will be applied on behalf of students who attend Virginia private schools, including certain private career schools. VPEP will pay to the Virginia private college or career school the lesser of 1) the payments made on the contract plus the actual rate of return or 2) the highest in-state undergraduate tuition and mandatory fees at a Virginia public school in the same academic year the benefits are used.
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Old 08-27-2010, 08:16 AM
 
31 posts, read 91,708 times
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Oops, miss the out-of-state section...

Out-of-State Colleges and Universities - VPEP will pay the lesser of 1) the payments made on the contract plus interest at the composite reasonable rate of return or 2) the average in-state undergraduate tuition and mandatory fees at Virginia public schools for the same academic year the benefits are used.
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Old 08-27-2010, 08:49 AM
 
381 posts, read 538,621 times
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Default Prepaid Plan vs. the Vest Plan

When it comes to tuition only, I don't see how anyone can argue against the prepaid plan. Do you really think your mutual fund is going to beat a 10% hike in college rates? Is the advisor/government/you really that smart? Tuition has consitently gone up more than healthcare and inflation every year. This truly is the next great bubble and as parents we have no choice but to throw money at it because it's our kids future. I think we have no choice but to consider the prepaid for tuition only. Lock and Load!! What say ye fellow bloggers?

Va. Tech tuition to rise by 10% - Roanoke.com
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Old 08-27-2010, 10:25 AM
 
Location: Chapel Hill, NC
7,989 posts, read 11,108,171 times
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Reasons not to do VPEP:
--If you think your child may go out of state, the returns that the VPEP pays is fairly low.
--College rates may not continue to climb 10% per year. If the economy continues as it does, who knows if they will increase rates at all certain years?
--If you are a knowledgeable investor and are confident in beating the "rates" the VPEP effectively gives you.
--If you don't have a large sum up front, but expect to have more in later years closer to college.

Reasons to do it:
--You are confident your child will go to a Virginia state school no matter what.
--You are a nervous investor and like to make sure everything is covered rather than hope your investments will beat the VPEP.
--You think tuition rates will rise higher than what you can earn on your own.
--You think tution rates will rise higher than what VPEP current return is.

Those are some thoughts that come to mind. I have read the VPEP is one of the better state pre-paid tuition plans, but I think that was the case more so early on in its inception. Apparently people who bought in back then got a very good deal because tuition rates rose so quickly and by so much.

Personally, I invest in an Education Savings Account, which only allows us to invest $2,000 per child per year, but that is about all we can afford to invest right now living on one income and saving for retirement as well. I like having control over my investments. If I had more than $2,000 to invest, then I would go with the 529.
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