Prepaid tuition plan.

In plain English

A prepaid tuition plan is a type of 529 college savings program where you pay now to cover a set amount of future tuition, usually measured in credits or semesters. The plan promises that the money will cover that same amount of tuition later, no matter how much prices climb. Most prepaid plans are run by states and cover in-state public college tuition and fees; some private colleges have their own version. This is different from a regular 529 savings plan, where your money is invested and the final value depends on how the market does.

01Why it matters

Tuition tends to rise faster than regular inflation, so locking in today's price can protect against years of increases. The tradeoff is less flexibility if your child picks a school the plan does not cover.

02The math, step by step

Imagine a state prepaid plan lets you buy one year of in-state public tuition today. You pay the current price and the plan guarantees one full year of tuition whenever your child enrolls, even if the sticker price has gone up a lot by then. If your child later chooses an out-of-state or private school, most plans pay out only the value the plan would have covered in-state, and the family makes up the rest. Which states offer a prepaid plan, and the exact terms, vary by state, so check your own state's plan.

03What this is NOT

04Receipts

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