I created a spreadsheet, picking a particular school (UVA), and estimated the rate of return I'd have to earn in a 529 plan to meet future costs given various guesses about the rate of increase in tuition. If you are convinced that you can earn 4% or more, the prepaid plan is not attractive. If you are risk averse, and afraid of a market drop, it may make sense.

Another option is to look at a private 529, eg Vanguard. You don't get a 2000 tax deduction, but Virginia's state run program has lagged in performance to general stock average and has higher costs.

We did the prepaid. We finished by the time each child was 4 years and we gave each child 3 years of prepaid tuition. Glad to know that if we were in a bind, this is taken care of. I can't believe that the tuition will ever go down. At the most it will stabilize and it's probably already at the amount we paid but we still have another 10 years before enrolling. We will probably do a 529 later. Plus, both plans are tax deductable.

Anonymous wrote:We are Virginia residents and trying to decide which to do, or if we should do both. Anyone else struggled with this and what did you decide?

We did both. Pre paid for tuition and fees, 529 for room and board. Spending money up to the kid. Additional savings in non educational accounts incase they don't go in state- earmarked "college/retirement".

We did the pre-paid in 2000 when tech stocks crashed and I was scared we wouldn't have enough money. Then, it cost just over $20k for each. I think of it as our insurance. No matter what happens, DCs will have tuition paid for somewhere. While we would really like for both to go in state, we are not "requiring" it and will pay nearly where ever they go (we have been saving elsewhere too). We have funded 529 to cover room and board only (~$50k each). Oldest is now a sophomore in HS and is aiming for engineering at Tech. So far, his grades are in the bottom half of those accepted from his HS. So, not a shoe in, but still in the game. Since he wants engineering, and if he can't go to tech, he will probaby go out of state to another state tech type school. We will see. Youngest is 8th grade, so the jury is still out for him (although based on MS performance, he has a shot nearly anywhere, just have to keep him "in the game").

We are in MD. Don't know the rules for VA, but in MD even if you don't go to a state school you still get full MD tuition to use at a private college.

We are generally on the conservative side for investing, we had a lump sum available from the sale of a house and we decided we really like the idea of having MD tuition prepaid, so we went with the prepaid plan, and then we also put some money into the regular 529 (cover housing, or private tuition, or grad school...).

The basic comparison is whether you think the market will increase more over the next 15-20 than college tuition. For a while it seemed obvious the answer was tuition, now it might seem obvious the answer is the market. I don't think there's an obvious answer overall, so maybe using both isn't a bad idea.

We are Virginia residents and trying to decide which to do, or if we should do both. Anyone else struggled with this and what did you decide?