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[quote=Anonymous][quote=Anonymous][quote=Anonymous]

So, the Open Enrollment period for Prepaid tuition plan just began and I'm thinking of shifting strategies. My thinking is the return on investment for the prepaid tuition is the inflation rate of college tuition in the state of Virginia. We all know college tuition inflation has been off the charts, right?
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My understanding is that they've built inflation into their projection of what they think you'll need.  Then, they assume a below-market rate of return because, after all, they are bearing the risk and are on the line if your total payments fall short of the full tuition amount.

So, for example, assume that today's total tuition for 4 years is $100K (obviously I'm making this up).  The plan managers make some assumption about inflation over the next 17 years, and come up with a projection that 4 years of tuition will be $150K when your kid is ready to go to college.  So your payments are based on $150K, not $100K.  Next, what rate of return do they build in on your monthly payments?  Probably a low-ish assumption, like 2%.  Because if they assume you would earn 8% annually, and this never happens, then you might only have $140K (again, I'm making these numbers up because I don't have time to work out a real example, and you get the point anyway!!!), then because they have promised you everything will be "pre-paid," they will be on the hook for the missing $10K.

At least, this was our understanding when we looked into this about 10 years ago.  Plans may have changed, and your plan may be different![/quote]

OP: Thanks. I guess I need to read the actuarial assumptions carefully. If they're pricing in inflation, I guess that's not such a hot deal. But I thought the whole point of these programs was to buy at today's prices.[/quote]

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