So you’ve made the decision to start saving for college in the U.Plan Prepaid Tuition Program. Good decision! This plan locks in a percentage of tomorrow’s tuition and mandatory fees at today’s rates at dozens of public and private colleges and universities in Massachusetts. You don’t have to select a college until it’s time for your child to attend, but you do have to select the years in which your U.Plan savings will mature and be ready to use for college costs. This may lead to some questions on the wisest way to allocate your money. MEFA’s role is not as a financial adviser, but we can talk about some choices parents make and why they may do so.
Selecting Allocations for Maturity Years
When you save in the U.Plan, you select maturity years for your investment. Those are the years that your child will attend college, and when you plan to use the funds. You can choose to put funds in one year or spread your savings out over 2, 3, or 4 years. The more money you designate for one year, the higher percentage of tuition and mandatory fees you will lock in for that year. People may choose to put all of their money into one maturity year (rather than spreading it out over many) in order to lock in a larger percentage of that year. For guidance on selecting the correct maturity years, review our Maturity Year Selection Guide.
Saving in One Maturity Year
When families decide to prioritize saving in just one maturity year (at least to begin), they often choose the student’s first year in college, so that they can have as much of the tuition covered for that year as possible (and perhaps delay borrowing). Think about it this way. If tuition costs $10,000 a year and you put in $1,000 for the freshman year of your child’s college education, that would buy 10% of that year’s tuition and mandatory fees, whatever it ends up being at the time your child attends college. If you spread that $1,000 savings over 4 years instead, and put in $250 for each year, that would buy 2.5% of each year’s tuition and mandatory fees. Some families prefer locking in that larger percentage by saving in just one maturity year.
Choosing a Maturity Year
If you put all or most of your U.Plan contribution into one maturity year, is it better to concentrate on the early or later years of college? There are, again, arguments for both. Many families want to concentrate their savings in the first year or two in order to ease the transition into paying for college. Some families want to invest in the final two years, reasoning that tuition will be that much higher in the final years and thus, their investment could possibly be worth more. This decision should be based on your own family’s preferences and priorities.
Saving in Multiple Maturity Years
Rather than saving in one or two maturity years, some families like the peace of mind of knowing they have money saved for each of the four years of college, so they save for each one. Even if the percentage locked in per year is lower than if the family had saved in one year alone, it’s helpful to know that there won’t be a year when the family is required to pay the full sticker price.
So again, the decision of how you will invest your U.Plan savings is really personal to your family and your own preferences. But don’t let having to make these decisions stop you from saving in the U.Plan. Any savings will help you reduce your college costs and open the doors of education for your child. Remember, there is no “wrong” choice, as long as you have thought through your decisions. And of course, if you have any questions about the U.Plan, please don’t hesitate to reach out to us at [email protected] or (888) 590-5653. We’re happy to help.
