Reply to MD 529 pre paid tuition debacle

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]This is why the prepaid plan shouldn't even exist; it's too complicated with too many variables.

A prepaid plan is like a defined benefit (retirement) plan. Those mostly don't exist, either, and for good reason.

Everyone should just save in a regular 529 and take on the risk of not having enough or having too much when it's time for college.

That's my (probably unpopular) opinion.[/quote]

Yeah, I looked into several of these when my first was born.  The PA one was the best deal, but none of them really made much sense.  The returns are very low.  The markets would have to have a really bad 18 years for them to make sense.  I'm not sure why anyone does them.  [/quote]

People do them because historically it's not hard for state college tuition increases to outpace the stock market, and some people would rather outsource the risk of that happening to the fund manager.  The "returns" are directly tied to tuition increases so ex ante it's impossible to know which will be better.[/quote]

That's the sales pitch, but when you look at the details of the plans they don't really deliver on it.  The plans all differ so this is a generalization, but a few things I noticed:
- many of the plans charge more for the credits than the current tuition, so they are baking in some of the return
- the fine print always says that it is not guaranteed by the state and they can lower benefits or impose surcharges/fees/premiums of tuition outpaces expectations or the market underperforms.  A bunch of them in fact did this in the 2000s when there were several years of market underperformance.
- many of the plans only cover "tuition," but not fees or room and board.  A lot of the state college inflation is naturally in the fees and room and board.  
- the best benefit is always for the in-state schools.  You can usually use the plans for out of state or private schools, but you get seriously shafted if you do this.  Often you just get a return of principal or some very nominal return.  If you know for sure that your kid is going to an in-state schools, it can make sense.  But you lose a lot of flexibility in college choice.[/quote]

But with respect to the MD plan a bunch of these don't apply.  Although the fees/room and board one is a valid point.[/quote]

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