Pre-paid college tution

HI Terry,

I caught the last half of your answer on WGN this morning regarding pre-paid college tution. I was wondering what you recommend instead of the pre-paid state College fund.

Terry Says:  If you were watching me on WGN, you’re probably and Illinois resident, and referring to the CollegeIllinois prepaid tuition plan.  I tried to carefully avoid denigrating it, but from me you always get The Savage Truth when you ask directly.  Given Illinois’ financial condition there is no way I  would put another penny into CollegeIllinois.  Period.  If the state runs out of money, they could issue tuition vouchers to life up to their promises. But it’s difficult to pay teachers, electric bills, etc with “vouchers.”  So the education system itself could be impacted if Illinois can’t keep its promises.  That’s not a risk I would want to take with my child’s college education.  (As I mentioned on the program, there are other states where that risk is not nearly as great.)

As an alternative I would open a 529 college savings account at Vanguard or Fidelity, using the state plans they offer.  The are low cost and have a good track record. A lot of the end result will depend on the performance of the investments.  And so if your children are already nearing high school, you’ll want to choose the most conservative investments.  You can chose the more aggressive, age-based program for young children as they will have 15 years or more until the money is needed.