Treatment of Tuition Prepayment Plans in Financial Aid

Current Regulation:

Savings from tuition prepayment plans (such as the Massachusetts U.Plan) are currently counted as a resource that reduces the student's cost of attendance and therefore reduces a family's eligibility dollar for dollar in federal, state, and institutional financial aid programs including parent loans.  This is defined in section §480j of the Higher Education Act of 1965 (as amended) (20 U.S.C.A. 1987vv(j)(2)(A) and (B)).

Issue:

Currently, families saving for college in tuition prepayment plans, rather than in other savings and/or investment vehicles are severely penalized when applying for financial aid. Savings in a Tuition Prepayment Plan currently reduce a family's eligibility dollar for dollar (100%) for financial aid and parent loans, while only a portion of all other parental assets (approximately 6%) are considered in calculating a family's contribution for financial aid eligibility.

Twenty-one (21) states currently have prepaid tuition programs. Here in Massachusetts, over 33,000 families have invested over $102 million in the Massachusetts U.Plan Prepaid Tuition Program. The current federal treatment of the programs is inconsistent with the states' public policy goal of encouraging all families to save for higher education.

Proposal:

For purposes of determining a dependent student's eligibility for funds under this title, all "529" plans, including prepaid tuition and savings plans, as well as Educational Savings Accounts (ESAs), and other similar educational financial savings plans will be counted as a parental asset. For purposes of determining an independent student's eligibility, all "529" plans, including prepaid tuition and savings plans, as well as Educational Savings Accounts (ESAs), and other similar educational financial savings plans will be counted as the student's asset 

This recommendation is a simple approach to the treatment of these assets that encourages families to save for college. This approach continues to include such assets in the EFC calculation, but moderates their impact significantly.

This position is consistent with proposals from the National Association of Student Financial Aid Administrators (NASFAA) and the College Savings Plans Network (CSPN) as it would encourage, rather than penalize, families for saving money for their children's college education.

Possible Objections:

Prepaid tuition programs are designed to pay tuition costs directly to a specific college and the current treatment is warranted.

Counter Argument:

The purpose of the original legislation referred to institutional-specific tuition prepayment plans, not to the current state-sponsored tuition prepayment plans as they have evolved.   Most current tuition prepayment programs are typically not restricted to any specific college, and although some offer guaranteed rates of return, they are similar to other savings vehicles that have more favorable financial aid treatment.