Virginia Prepaid Education Program -- closed? (credit, loan, to buy)

[athensvaasi]

Virginia Prepaid Education Program (college savings) -- says it is closed. Anyone familiar with this, why it is currently closed, when re-opening, ..? Thanks.

[tamitrail]

They have enrollment periods. You can only enroll during a certain time of the year. I don't know when the next one is, but you should be able to find it on their site.

[slim04]

It should open up in the fall. FYI, the Virginia prepaid program really stinks. If you child doesn't go to a Virginia public college, they basically just give you back the money you paid in with interest. So it's like putting money in a savings account for 18 years if your child decides to go elsewhere.

In MD, if your child doesn't go to a MD public college, they give you the equivalent of what tuition at an average public university costs in MD the year your child graduates high school. This will be much greater than savings interest rate (actually probably around a 7-8% return, maybe more if the state reduces its support for the public university system).

The other Virginia 529 plans are like Roth IRA tax deferred investment accounts, where you invest your money in mutual funds and you get whatever it grow to tax free (as long as the proceeds are used for any education expenses for you or a relative).

The Virginia Prepaid plan is only better than the investment account-type 529 plans if 1) you know that your child will go to a Virginia public university, 2) you will remain a Virginia resident, and 3) you believe that the tuition increases will outpace the investment returns in the mutual funds of the investment plans.

I think most people would be wary of making those assumptions, particularly #1. As you never know if your child will get a scholarship (academic or athletic) or substantial aid elsewhere, if they can even get admitted to a decent VA public school N.Va. College Applicants Face Extra Hurdle , or what your child's interests are.

[tamitrail]

I disagree. I think the VCSP is great. There are different options. If your child gets a scholarship, becomes disabled or God forbid passes on, the money is fully refundable and not taxed. You can also pass along the money to another child in the family. You get a huge tax credit on your VA tax return. The VCSP lets you invest in your child's future with different type plans and you get to decide if you want to pay additionally for room and board. There are PLENTY of colleges to chose from in VA. Not all the plans are involved in mutual funds and you pay your monthly payment and the tuition fully paid by the time your child goes to college. Today's tuition rates already outpace what I will have paid into the plan..so I think it's a good investment. We have relatives in NJ who opened up a NJ 529 plan and they certainly do not have enough money it in to pay for their son's tuition. He will be starting college next year.

Whether it stinks or not compared to Maryland is a moot point since I do not live in Maryland and don't plan to.

Yes, the drawback is that if you move from VA, you only get a refund of the money you put in. However, my husband was recently offered a relocation to another state, which he did not take, and part of the relocation package was recooped money that would be lost from the plan should we have left VA.

I think any college preparation is better than none at all.

[slim04]

The VCSP (Virginia College Savings Plan) consists of 4 529 plans: 1) the Prepaid Tuition program called VPEP; 2) the investment account plan called VEST; 3) College America, which is basically VEST sold through investment advisors; 4) College Wealth, a savings account sold through banks.

The plan that I think stinks is VPEP, the prepaid tuition plan. VEST and College America are great and I would highly recommend them. For VPEP, if your child or children don't want to go to a virginia public college, you just spent all of your money over the years in a glorified savings account earning 2% in interest.

If you child DOES go to a Virginia public university, you only come out ahead if tuition outpaces the investment return in VEST or College America. To give some context, it is estimated that tuition will rise about 7% to 8% per year. A highly diversified mutual fund in VEST or College America (a mix of stock and bonds) roughly earns 7-8% annually over time. So generally, it will probably be a wash.

The only difference is if your child or children don't want to attend a Virginia public college, your return in the VPEP shrinks to 2% annually. While your VEST or College America plan can be used at full value (assuming 7-8% annually) at any school, even for places like culinary school.

So there is a risk that the return on the VEST or College America plan won't earn 7-8% annually, but I think the greater risk is your child or children won't be interested (or gain admission at the better Virginia public colleges) in Virginia public schools. I'll gamble on a diversified portfolio over the whims of a 17 year old.

[tamitrail]

Well, if your 17 year old is given a choice go to a VA school for nothing, or pay for a college somewhere else themselves, it's up to them to decide. I am totally happy with the prepaid plan and think it was the best choice for us. If my children end up being foolish enough not to take advantage of it, so be it. They will have options, it's up to them how to use them. And honestly, I guarantee that if they take out the money at the end, it will still be more than some people's 529 plans.

[slim04]

Originally Posted by tamitrail

Whether it stinks or not compared to Maryland is a moot point since I do not live in Maryland and don't plan to.

I don't want to live in Maryland either. I just used its plan as a comparison. Virginia is one of the only states that has a prepaid tuition program just refunds what you paid in with nominal interest if your children doesn't go to in-state school (vs. giving you the equivalent in-state tuition in 17 years for use elsewhere).

If you quantify the difference between the two prepaid tuition programs, it is approximately $50,000 over 17 years if the children don't go to the in-state schools. That's a lot of money.

So why doesn't Virginia use the method almost all other states use? The state didn't adequately fund the states prepaid program, so they had to do it on the cheap. This flaw isn't well known and most people when they read articles about prepaid programs, they think they are getting something close to MD's program, not VA's.

That's why financial planners never recommend the prepaid program in Virginia. As for your relatives in NJ, unless they invested all of their 529 funds in risky mutual funds, they probably didn't fund it at the same level as the prepaid plan requires you to if you want tuition for 4 years. When I looked into this a few years ago, you had to pay $770 per month for an infant for 17 years to get 4 year tuition paid for. If you just stick that $770 into a VEST plan on a monthly basis, you'll come out close to what you'll have to pay for in-state tuition. Only you don't get the $50K headache when you child says they want to go to Penn. St. or Georgetown.

[tamitrail]

My youngest is 4 and I pay nowhere near $770 for a 4 year university plan and I didn't compare VA's plan to MD's at all. My 7 year old's monthly payment is even less. I see what you are saying, but I still think it's a good deal and if one of my kids has say $33,000 in his/her account at the end and tuition at an out of state school is X amount, at least they have some money to go towards it...it's their choice to make. They'll have to figure out how to fund the rest themselves after that and their savings.

I think with the economy the way it is today, children are lucky their parents are providing ANY sort of funds for college. I didn't get any when I was young.
And I know that middle class families with multiple children are not socking away $770 per month per child in 529 plans.

[slim04]

I'm sorry, I forgot that my wife wanted to pay on the 10 year plan instead of the 17 year plan. I think it was $360 per month for 17 years and $770 to pay it all off in ten years (or something like that).

I once had a spirited debate with a colleague who said that saving for college was a waste of money. He was going to take a sabbatical to write a book, take any savings to buy a huge house, and basically claim he is poor right before his child goes to college. He claims that his child will get a ton of need based financial aid and grants that people like me (who saved) wouldn't be eligible for.

I told him that sounded like fraud.

[tamitrail]

Surely, you're not saying that's what I'm doing?

My parents were not very well off at all and when I went to college in the 80's, I was told they made too much money for me to even get a loan. I had to save and pay my own way and would have welcomed ANY help at all.