Saving for your child’s education is one of the most important financial decisions you can make as a parent. While many people are familiar with the traditional state-sponsored 529 plans, a lesser-known option is the private 529 plan. A private college 529 plan is a prepaid tuition plan that locks in current rates to save on future tuition. In this blog, we explore what private 529 plans are, their benefits, and why they may be an excellent choice for your child’s college savings.
What are private 529 plans?
A private 529 plan is a college savings plan offered by certain colleges and universities. It allows families to pay for and lock in college tuition at today’s rates. It is a prepaid tuition plan that is low-risk and hedges against tuition inflation. If your child plans to attend a participating institution, a private 529 plan may be a fantastic option to consider.
How does a private college 529 plan work?
The private 529 plan is a prepaid tuition plan. 529 accounts are typically opened by parents, or grandparents, with their child named as beneficiary. The contributions are used to purchase tuition certificates for future college tuition and mandatory fees. The certificates are redeemable at any current or future member school.
Between July 1 and June 30 of the following year, contributions lock in that year’s tuition and fees rate at each member school. On July 1, all contributions from the previous 12 months go toward the purchase of a single tuition certificate for all member colleges. The rates change on July 1 of every year.
When you prepay tuition, you are essentially paying what you would pay right now if your child was to start college. According to Educationdata.org, the average cost of tuition & fees at private 4-year institutions has risen 124.2% over the last 20 years for an average annual increase of 6.2%. The average tuition at a private university is currently $38,768. If you inflate today’s cost at 6.8% per year over the next 15 years, the cost increases to $104,002 per year. This number doesn’t even include college-related expenses which will also increase with inflation.
There are no fees associated with the private 529 account and participating colleges are contractually obligated to honor prepaid tuition for up to 30 years. Every dollar put into the account pays for tuition at current rates. However, you do forgo the potential upside opportunity in the traditional 529 savings plan which gains value when the market rises.
What is the difference between a private college 529 plan and a regular 529 plan?
Both private college 529 plans and regular 529 plans help you save for your child’s college education. However, there are some key differences.
| Regular 529 Plans | Private College 529 Plans | |
| Sponsorship and affiliation | These plans are sponsored by individual states, and each state administers its own plan. Residents of any state can usually invest in any state's 529 plan, regardless of where they plan to attend college. | These plans are sponsored by specific private colleges and universities. They are only available to families who intend to send their child to one of the participating institutions affiliated with the particular plan. |
| Investment options | Typically offer a range of investment options, such as mutual funds, index funds, and target-date funds. | No investment options. Families prepay a certain number of tuition credits at today's prices, which can then be used when the child attends one of the participating colleges. |
| Qualified expenses | Can cover all college expenses. | Can only cover tuition and specific fees. |
| Residency requirements | The majority of 529 plans are open to residents of any state. | All private 529 plans are open to residents of any state. |
| Qualified institutions | Funds can be used at any eligible higher education institution. | Funds can only be used at the specific private colleges and universities that are affiliated with the private college 529 plan. |
| Tax benefits | Contributions grow tax-free and qualified withdrawals for educational expenses are also tax-free. Some states may offer tax deductions or credits for contributions. | Contributions grow tax-free and qualified withdrawals for educational expenses are also tax-free. |
What is the maximum contribution amount?
The maximum contribution amount is the cost of five years of full-time undergraduate tuition and mandatory fees at the highest-cost participating institution. This is currently $332,450 for the PC529 2022-2023 plan year.
What is the minimum contribution amount?
The minimum contribution amount is $25. However, contributions must reach $500 within two years of opening the private college 529 account. If you choose the installment payment plan, you’ll pay $25 a month over two years to meet this minimum.
What are the benefits of private 529 plans?
- Less market risk and no fees: Every dollar that you save pays for your child’s future tuition. No matter how much tuition increases over the years, or what the stock market does, the rates are locked in at all participating schools.
- No income limits: There are no income limits for investors.
- Generous contribution limits: The maximum contribution amount is currently $332,450 for the PC529 2022-2023 plan year.
- Financial aid eligibility: A private 529 plan assets are considered parental assets for financial aid purposes. Parental assets are generally assessed at a lower rate than student assets when determining eligibility for financial aid.
- Tax benefits: Private 529 plans offer valuable tax benefits. The contributions grow tax-deferred and withdrawals are tax-free when used for qualified education expenses. The tax-free growth of your child’s college savings can make a significant difference. Some states offer income tax deductions or credits on contributions. Contributions are also considered completed gifts and qualify for the annual gift tax exclusion.
- No state residency requirements: Unlike some state-sponsored plans that require you to be a resident of the sponsoring state, private 529 plans usually have no residency requirements. This means that you can have a private college 529 plan no matter what state you live in.
Which colleges and universities participate in the plan?
Nearly 300 private colleges and universities currently participate in the private college 529 plan including Notre Dame, Princeton, MIT, Duke, Tulane, Wake Forest, and Stanford.
| Private College 529 Participating Schools |
|---|
| A |
| Abilene Christian University, TX |
| Agnes Scott College, GA |
| Albion College, MI |
| Albright College, PA |
| Allegheny College, PA |
| Alvernia University, PA |
| American University, DC |
| Amherst College, MA |
| Arcadia University, PA |
| Ashland University, OH |
| Augsburg University, MN |
| Augustana College, IL |
| Augustana University, SD |
| Austin College, TX |
| Ave Maria University, FL |
| B |
| Baldwin-Wallace University, OH |
| Bard College, NY |
| Baylor University, TX |
| Belmont University, TN |
| Beloit College, WI |
| Berklee College of Music, MA |
| Berry College, GA |
| Birmingham-Southern College, AL |
| Boston Conservatory at Berklee, MA |
| Boston University, MA |
| Bradley University, IL |
| Brandeis University, MA |
| Bridgewater College, VA |
| Bucknell University, PA |
| Buena Vista University, IA |
| Butler University, IN |
| C |
| California Institute of Technology, CA |
| California Lutheran University, CA |
| Canisius College, NY |
| Capital University, OH |
| Carleton College, MN |
| Carnegie Mellon University, PA |
| Carson-Newman University, TN |
| Case Western Reserve University, OH |
| Catawba College, NC |
| Catholic University of America, DC |
| Centenary University, NJ |
| Centenary College of Louisiana, LA |
| Central College, IA |
| Centre College, KY |
| Chapman University, CA |
| Charleston Southern University, SC |
| Chatham University, PA |
| Claflin University, SC |
| Claremont McKenna College, CA |
| Clark Atlanta University, GA |
| Clark University, MA |
| Clarke University, IA |
| Coe College, IA |
| The College of Idaho, ID |
| College of Saint Benedict, MN |
| The College of Wooster, OH |
| Colorado College, CO |
| Columbia College, SC |
| Concordia College at Moorhead, MN |
| Concordia University-Nebraska, NE |
| Concordia University-Wisconsin, WI |
| Concordia University Texas, TX |
| Converse University, SC |
| Cornell College, IA |
| Covenant College, GA |
| Creighton University, NE |
| Culver-Stockton College, MO |
| D |
| Daemen University, NY |
| Dallas Baptist University, TX |
| Davidson College, NC |
| Denison University, OH |
| DePauw University, IN |
| Dickinson College, PA |
| Dillard University, LA |
| Doane University, NE |
| Dordt University, IA |
| Drew University, NJ |
| Drexel University, PA |
| Drury University, MO |
| Duke University, NC |
| E |
| Earlham College, IN |
| East Texas Baptist University, TX |
| Eastern Mennonite University, VA |
| Eckerd College, FL |
| Elmhurst University, IL |
| Elmira College, NY |
| Emerson College, MA |
| Emory University, GA |
| F |
| Fairfield University, CT |
| Faulkner University, AL |
| Franklin & Marshall College, PA |
| Franklin College, IN |
| Franklin Pierce University, NH |
| Furman University, SC |
| G |
| George Fox University, OR |
| Georgetown University, DC |
| George Washington University, DC |
| Gettysburg College, PA |
| Gordon College, MA |
| Goucher College, MD |
| Graceland University, IA |
| Greensboro College, NC |
| Grinnell College, IA |
| Grove City College, PA |
| Guilford College, NC |
| Gustavus Adolphus College, MN |
| H |
| Hamline University, MN |
| Hampden-Sydney College, VA |
| Hampshire College, MA |
| Hannibal-LaGrange University, MO |
| Hardin-Simmons University, TX |
| Hartwick College, NY |
| Harvey Mudd College, CA |
| Hendrix College, AR |
| Hiram College, OH |
| Hobart William Smith Colleges, NY |
| Hollins University, VA |
| Holy Cross College, IN |
| Hope College, MI |
| I |
| Illinois Institute of Technology, IL |
| Illinois Wesleyan University, IL |
| Immaculata University, PA |
| Indiana Wesleyan University, IN |
| Ithaca College, NY |
| J |
| Jacksonville University, FL |
| John Brown University, AR |
| John Carroll University, OH |
| Johns Hopkins University, MD |
| Juniata College, PA |
| K |
| Kalamazoo College, MI |
| Kenyon College, OH |
| Keystone College, PA |
| Knox College, IL |
| L |
| La Salle University, PA |
| LaGrange College, GA |
| Lake Forest College, IL |
| Lakeland University, WI |
| Lawrence University, WI |
| Lenoir-Rhyne University, NC |
| Lewis & Clark College, OR |
| Linfield College, OR |
| Loras College, IA |
| Loyola University Maryland, MD |
| Lubbock Christian University, TX |
| Luther College, IA |
| Lyon College, AR |
| M |
| Macalester College, MN |
| Marist College, NY |
| Mary Baldwin University, VA |
| Maryville University of Saint Louis, MO |
| Marywood University, PA |
| Massachusetts Institute of Technology, MA |
| McDaniel College, MD |
| Mercer University, GA |
| Methodist University, NC |
| Middlebury College, VT |
| Monmouth College, IL |
| Moravian University, PA |
| Mount Holyoke College, MA |
| Mount St. Mary’s University, CA |
| Mount St. Mary’s University, MD |
| Mount Vernon Nazarene University, OH |
| Muhlenberg College, PA |
| Muskingum University, OH |
| N |
| Nazareth College, NY |
| Niagara University, NY |
| North Central College, IL |
| Northwest Nazarene University, ID |
| Northwestern College, IA |
| Norwich University, VT |
| Notre Dame of Maryland University, MD |
| O |
| Oberlin College, OH |
| Occidental College, CA |
| Oglethorpe University, GA |
| Ohio Wesleyan University, OH |
| Oklahoma City University, OK |
| Oklahoma Christian University, OK |
| Olivet Nazarene University, IL |
| P |
| Pace University, NY |
| Pacific Lutheran University, WA |
| Pacific University, OR |
| Pepperdine University, CA |
| Pitzer College, CA |
| Point Loma Nazarene University, CA |
| Pomona College, CA |
| Presbyterian College, SC |
| Princeton University, NJ |
| R |
| Randolph College, VA |
| Reed College, OR |
| Regis University, CO |
| Rensselaer Polytechnic Institute, NY |
| Rhodes College, TN |
| Rice University, TX |
| Rider University, NJ |
| Roberts Wesleyan University, NY |
| Rochester Institute of Technology, NY |
| Rockhurst University, MO |
| Roger Williams University, RI |
| Rollins College, FL |
| Rose-Hulman Institute of Technology, IN |
| S |
| Saint Edward’s University, TX |
| Saint Francis University, PA |
| Saint Johns University, MN |
| Saint Leo University, FL |
| Saint Louis University, MO |
| Saint Mary’s College, IN |
| Saint Mary’s College of California, CA |
| Saint Michael’s College, VT |
| Saint Xavier University, IL |
| Salem College, NC |
| Samford University, AL |
| Sarah Lawrence College, NY |
| Schreiner University, TX |
| Scripps College, CA |
| Seattle Pacific University, WA |
| Shenandoah University, VA |
| Simpson College, IA |
| Skidmore College, NY |
| Smith College, MA |
| Southern Methodist University, TX |
| Southern Nazarene University, OK |
| Southwestern University, TX |
| Spelman College, GA |
| Spring Hill College, AL |
| Springfield College, MA |
| St. Mary’s University |
| St. Olaf College, MN |
| Stanford University, CA |
| Stephens College, MO |
| Stetson University, FL |
| Stevens Institute of Technology, NJ |
| Susquehanna University, PA |
| Sweet Briar College, VA |
| Syracuse University, NY |
| T |
| Texas Christian University, TX |
| Thiel College, PA |
| Tiffin University, OH |
| Transylvania University, KY |
| Trevecca Nazarene University, TN |
| Trinity College, CT |
| Trinity University, TX |
| Tulane University, LA |
| U |
| University of Chicago, IL |
| University of Dallas, TX |
| University of Dayton, OH |
| University of Denver, CO |
| University of Evansville, IN |
| University of La Verne, CA |
| University of Mary Hardin-Baylor, TX |
| University of Miami, FL |
| University of Mobile, AL |
| University of Notre Dame, IN |
| University of Redlands, CA |
| University of Richmond, VA |
| University of Rochester, NY |
| University of San Diego, CA |
| University of Southern California, CA |
| University of St. Thomas, MN |
| University of the Pacific, CA |
| The University of the South, TN |
| University of Tulsa, OK |
| Ursinus College, PA |
| V |
| Valparaiso University, IN |
| Vanderbilt University, TN |
| Vassar College, NY |
| Virginia Wesleyan University, VA |
| W |
| Wabash College, IN |
| Wagner College, NY |
| Wake Forest University, NC |
| Wartburg College, IA |
| Washington & Jefferson College, PA |
| Washington University in St. Louis, MO |
| Waynesburg University, PA |
| Webster University, MO |
| Wellesley College, MA |
| Wells College, NY |
| Wentworth Institute of Technology, MA |
| Wesleyan College, GA |
| Wesleyan University, CT |
| West Virginia Wesleyan College, WV |
| Westminster College, MO |
| Westminster College, PA |
| Westmont College, CA |
| Wheaton College, MA |
| Wheeling University, WV |
| Whittier College, CA |
| Whitworth University, WA |
| Willamette University, OR |
| Wittenberg University, OH |
| Wofford College, SC |
| X |
| Xavier University, OH |
| Y |
| York College of Pennsylvania, PA |
Does a private college 529 plan only pay for tuition fees?
The private college 529 plan only buys tuition certificates which are used to pay for the cost of tuition and mandatory student fees. Therefore, you may still want to have a traditional 529 plan to save for other college expenses, such as room and board. The private college 529 plan can be used as an additional, layered approach to saving for college.
How soon can my child redeem their tuition certificate?
A minimum of 36 months must lapse between the initial purchase date of the tuition certificate and the first redemption. Therefore, it does require some pre-planning.
Do I need to know where my child is going to college when I open an account?
No. When you open a private college 529 plan account, you don’t need to know where your child is going to college. As long as the student has a private college 529 account, prepaid tuition can be used at any participating school.
Can participating colleges stop participating in the plan?
Schools can choose to stop participating in the private college 529 plan on a prospective basis only. However, even if the school does withdraw, they are still obligated to honor any tuition certificates that were purchased before the school’s withdrawal.
What happens if my child doesn’t go to a private school?
Below are some options if your child ends up going to a non-member school.
- Assign the account to another beneficiary student.
- Roll the private 529 plan into another traditional state 529 plan.
- Use it for your own education expenses.
- Use a portion to pay for student loans.
- You may request a full or partial withdrawal. Tuition certificates are only eligible for withdrawal after they have been held for 12 months. Any investment earnings are subject to income tax and an additional 10% penalty tax.
Is a private college 529 plan worth it?
A private college 529 plan can be an attractive option if your child has a clear desire to attend one of the participating institutions. Consulting with a financial advisor can also provide valuable guidance in choosing the most suitable college savings plan for your family’s needs. If you’re interested in saving for your child’s future and want to maximize your money through a comprehensive financial plan, schedule a free discovery call today.
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.
