Ask Terry Questions College Savings Plans in Illinois: What to do! Why I Don’t Recommend BrightStart

College Savings Plans in Illinois: What to do! Why I Don’t Recommend BrightStart

By Terry Savage on December 08, 2013 | College Savings / Student Loans

On WGN the other day you mentioned you no longer recommend the IL pre-paid plan for saving for college. I own 2 pre-paid years that I bought in 2005 & 2006. I read your comment about a rip off in 2008 and that is why you no longer like the plan. There were rumors that it was underfunded a few years ago. I called them on this topic and they said it was only underfunded if they had to pay right now for every policy but the policies are spread over 18 years so they are properly funded. Our daughter is in 6th grade and is an only child. Should we pull the money out and invest it on our own in a different 529 plan? What would you do if you were in our shoes? We are grandfathered into the University of Illinois because we bought in 2005. Are we at risk with our investment in the pre-paid IL plan?
Thank you,

Terry Says:  OK, let’s get this straight.  There are two types of college savings plans in Illinois.   And there are two versions of each plan.  Here’s an explanation of all of them!

The first is the CollegeIllinois Prepaid Tuition Plan.  With this plan you go to the state’s website — — and you prepay for college tuition at any Illinois public or private university.  There are separate prepayment amounts depending on whether you are buying semesters of tuition at either a presumably lower-cost public, or private college.   The younger the child, the lower the cost you much pay each year — but the state says that if you pay for tuition in advance it will cover the cost of tuition, no matter how high inflation pushes prices each year.   And I was all in favor of this plan, despite the fact that it limits your child to college in Illinois because if the money is transferred for use in an out-of-state school there is no guarantee there will be nearly enough to pay for an out-of-state college semester.

BUT — about 18 months ago, a Crains Chicago Business investigation revealed that the investments the state’s appointed board made for the money in the plan were risky, and that some of it was lost.  As if that wasn’t bad enough, the State announced that it didn’t really stand behind the “guarantee” that we all though was part of the plan.  That is, if there wasn’t enough money in the plan to provide the tuition, the general funds of the state were not required to be used to make good on the promise!!   That huge distinction had not previously been made public!  (Of course, the state could just direct state universities to accept the students based on the tuition promise, but if the cash isn’t there, how would the states pay the teachers??) It is a potentially dire consequences.

What to do with CollegeIllinois.  My personal view is that if you have already started a plan, you should continue it — especially if your child is within 5-7 years of college. But I wouldn’t open a new CollegeIllinois prepaid tuition plan for a child now, or in the future.

Bright Start Savings and Bright Directions Savings 529 Plans — these are tax-free savings plans run by each state, designed to build college funds.  All gains in the plans come out tax FREE if the money is used to pay for college expenses (tuition, room and board, fees,, etc) AT ANY ACCREDITED COLLEGE IN ANY STATE and for ANY CHILD in the immediate family.

There is no rule that says you have to invest in your state’s plan!  In Illinois you get a tax deduction on your STATE taxes, for up to $10,000 in contributions every year.   But if a state plan does not have good investment choices or has high fees, you would be better off giving up the tax deduction in favor of a plan that works better.

The Bright Start plan is sold directly though its website ( — There are no fees, no commissions, and you can do it yourself online, or by calling them.  You do have to make some investment choices — either a selection of mutual funds, or the age-based plan, which grows more conservative in the investments as your child approaches college age.

The BrightDirections version is sold be investment advisors, and carries extra fees to pay for their advice in getting you into the program and helping you choose among the plan investments.  I always say it is worth paying fees to an advisor for good advice, but in this case the plans are so simple I consider it unnecessary to go through a broker or advisor.  Just do it yourself.

BUT DONT DO IT IN BRIGHT START!  Since you can open a 529 account in any state’s plan, I suggest you go either to or and use their plans (designated for other states, but that makes no difference).  These plans are well run, have low costs, and excellent investment choices.

WHY AM I AGAINST BRIGHT START?  In 2008, during the financial crisis, one of the fund advisors in Bright Start has an enormous loss — in the fund that was supposed to be the most conservative, short-term and secure alternatives.  The portfolio managers for that fund “left” (no one would say they were fired) and after a lawsuit lead by Ill AG Lisa Madigan, and several other states, there was a settlement that returned PART BUT NOT ALL of the lost funds!  I though that was outrageous, but the lawyers said it was the best they could do without a long, expensive legal process.  THEN, I asked why that fund management company was not fired!  I kept writing about it publicly in my Sun-Times column, but never received a good answer from the Treasurer of Illinois.

(By the way, fund management companies in each program pay fees to the Treasurer of each state for which they manage funds.)

So it is my very public position that this management company should have been FIRED — removed from managing ANY Illinois Bright Start money.  They are still there.  As long as that is the case, I will never recommend BrightStart again — despite thesmall tax deduction — when there are other good, better, 529 College Savings Plans out there.

To help you find them, if you don’t want to go to T Rowe Price or Vanguard, go to and/or and do your homework.  And that is THE SAVAGE TRUTH!



a personal
finance question