My College Corner welcomed Joanne Dashiell, the CMO of CollegeWell, the Private College 529 Prepaid College Savings Program. Prepaid tuition programs offer college savers an opportunity to beat inflation by locking in the cost of college at today’s price for future attendance. Joanne does a fantastic job of outlining the challenges and benefits of these programs, including what happens if the student winds up not going to the college. And she tells us what’s unique about CollegeWell’s program.
To see the full interview:
JH: This is My College Corner’s “Ask the Expert”. I’m your host, John Hupalo. Last year, Patricia Roberts from Gift of College and author of this really great book, “Route 529”, was here to talk about mostly 529 savings programs, and that was a great chat. If you want to, you can find it on the My College Corner’s YouTube Channel.
But today, I want to dig into one of the other types of 529 programs. And Patricia mentions it in her book. They’re prepaid 529 programs, which basically allow families to lock in the cost of college at today’s prices for use in the future. So that’s pretty cool. And I am absolutely thrilled to welcome to My College Corner today my friend, the Chief Marketing Officer at one of the prepaid 529 programs, CollegeWell, Joanne Dashiell. Joanne, welcome to My College Corner.
JD: Hi, John. Thanks so much for having me. Happy to be here today.
JH: So, as most of us know, and if you saw Patricia’s conversation about 529s, the Section 529 of the Internal Revenue Code basically sets out these really great tax advantages for college savings. But now it’s been expanded to other uses, including apprenticeship programs and some pre-college programs, like high schools, and using it to pay for student loans. A whole bunch of stuff. The bottom line is the 529 programs allow savers the ability to save in an investment account tax-free and then make the withdrawals for qualified expenses without paying taxes there as well. So that’s really substantial savings for a lot of folks. Joanne, tell us a little bit more about what families can do, what prepaids are, and how they’re different from the savings accounts.
JD: Most families are familiar with the 529 savings or investing plans and don’t know that there are two different types of 529 plans. The major difference is really how they grow in value. So 529 savings are investment plans. Your contributions are invested in the market. And of course, you can experience market gains, but you are also subject to market losses. 529 prepaid plans have all the same federal tax benefits. So, both of these plans are growing tax-deferred. Distributions are tax-free as long as they’re used for one of the qualified expenses listed under that IRS 529 code, as you mentioned, John. But with a 529 prepaid plan, your contributions are actually locking in current year tuition and fees at all of the colleges that participate in the plan. So unlike 529 savings and investing plans, where the value of your account is tied to the market, your 529 prepaid plan is tied to tuition increases. And as tuition increases at those participating institutions, so does the value of your account.
JH: It’s basically a hedge against inflation. So if inflation goes up by 10%, I already have my investment. I know how much I’m gonna pay for my kid’s college in 5 years or 10 years or 15 years or whatever it might be. Is that right?
JD: That’s exactly right. So you don’t have to worry about what happens with tuition increases down the road if you’ve locked in tuition. You’re hedging against tuition, inflation, and that is certainly a concern with many families today, looking at the price of colleges continuing to go up. This is a way you can lock in tuition. You’re paying today’s tuition to use in the future, essentially at today’s rates, and not having to worry about what happens in the financial markets, especially important as your high school sophomore, junior, or senior are getting close to college age. You don’t want to have anything happen to that nest egg that you’ve been saving to send that child to college.
JH: In the savings programs, they start to de-risk it by putting it into safer investments and get out of the market. But with the 529 prepaids, you don’t have that problem because I already know it doesn’t matter. My kid can be five years out or five months out. I know how much I’m paying for that tuition.
JD: That’s exactly correct.
JH: So how many states offer these programs?
JD: There are only a handful of prepaid programs available across the country now. In fact, fewer than 10 states offer their own prepaid program in addition to their 529 saving or investment plan. So states that offer prepaid plans are also offering a 529 saving and investment plan. Florida, Texas, Washington, Nevada, Mississippi are a handful of states that still offer those programs. Massachusetts also offers a program. It’s not technically a 529, but it is a prepaid tuition plan.
Now one of the major differences between a 529 prepaid plan and a savings plan is that, traditionally, prepaid plans are created for in-state residents and designed to be used at public colleges and universities. And so those aren’t always as transferable out-of-state. The exception to that is Private College 529 plan, which is CollegeWell’s 529 prepaid plan, where it is the only nationwide plan that was created for private colleges and universities. And it doesn’t matter what state you live in. You can live in any state and contribute, participate in Private College 529, and lock in tuition and fees at close to 300 private colleges across the country. And the good news about Private College 529 Plan is that you don’t have to know which of those colleges your child is going to attend, because that’s always such a long shot, especially for parents with younger children. So you have a lot of flexibility. You can use your prepaid tuition at any of those participating institutions.
JH: What happens if my son or daughter decides they don’t want to go to college or they can’t go to one of those 300. What happens to that investment then?
JD: So with Private College 529 Plan, you get a full refund of your contributions plus up to 2% compounded annually. And you can take that to any eligible institution across the country, public or private. One of the benefits of a 529 plan is that, as long as that refund value is used to pay for qualified education expenses, there are no taxes or penalties on the distribution of those funds. So they can still be used without any tax or penalty on the earnings portion if used at any institution, even though you initially locked in at a participating college or university.
JH: That’s a really important point because I personally think that the prepaids are misunderstood because it’s a smaller part market. There’s something on the order of half a trillion dollars, 16 million 529 savings accounts, and something like about a million folks saving through prepaids. So it’s not as if it’s very inconsequential, understanding that it’s a limited number of programs.
But then the pushback on this sometimes is “what happens if?” It’s almost always “what happens if my kid doesn’t go to school, or doesn’t want to go, in this case, to that particular school?” So not only can I use that for another college, but I can then also use it for what I talked about before – paying student loans, or for an apprenticeship program, or for secondary school expenses. It’s extremely flexible on all sides.
JD: That’s right. So with the prepaid plan, you’re traditionally locking in just tuition and fees. You can’t lock in room and board, or books and supplies, or some of the other education expenses. You’re just locking in tuition and fees. But, they’re all under the 529 umbrella. So if you take that refund and want to use it for another qualified expense, you absolutely can.
JH: So this is another really cool sort of track to take. I want to hedge inflation. I’m a consumer of education and I have a five-year-old. And I buy some units for 10-15 years down the road for tuition. But can I also then have a savings account for all the other expenses? How does that work?
JD: Absolutely. That’s what I do. I’m the parent of two children. I have a 15-year-old and an 11-year-old, so college is not too far off for me. And I have four 529 accounts. They each have their own Private College 529 account. So I’m locking in tuition and fees. And they can use that at any of our nearly 300 participating institutions. But then I’m also saving in our state-based 529 saving plan. I can use that for other education expenses, like room and board, and books and supplies, or computer expenses even. And so I’ve got a nice balanced college savings portfolio doing that. I’m locking in tuition. I’m not tied to market fluctuations. As you said before, I know that’s going to be there when my kids go to college based on the percentage that I’ve locked in at each of those institutions. And if they don’t end up attending one of those institutions, then I can always take a refund. I could roll that over into my state 529 plan if I wanted to without any taxes or penalties. And then I can use that at, again, any qualified education institution across the country.
So I’m saving in both types of plans. I’m diversified in terms of market risk. And I have plenty of flexibility and options depending on what my child’s choice is. Unfortunately, it’s a misconception that you have to save in just your state’s 529 plan. Always check the rules for each state’s plan. But, in most cases, you don’t have to save in your state’s plan. And you certainly don’t have to just save in one plan. You can save in both types of plans, savings and prepaid, and get the best of both worlds.
JH: So, is the fundamental difference between your program and those state-based programs that yours is national for private colleges? Do you have any public schools in the system yet?
JD: All private colleges. So that is the main difference. And also nationwide. We have, like I mentioned, nearly 300 institutions coast-to-coast, large research institutions, small liberal arts colleges and universities, highly selective institutions, like Stanford, Princeton, MIT, and Notre Dame, but also institutions that select more than 50% of their applications. So a lot of variety there.
One of the other differences is that all of these other programs, and this is true for state-based savings programs and prepaid programs, they are run by the state treasury or a state entity. Our program was actually created by the colleges and universities over 20 years ago. It’s run by the colleges and universities. And because of that, they guarantee the prepaid tuition and the rates that you locked in.
JH: That’s the special part of it. And what you said before, which I didn’t realize, is that if something happens, I get my money back plus 2%. To me, that’s as good of a win-win as you possibly have.
One of the things that we touched on before is this idea that there is a need for consumers to be better informed about how these programs work. What resources do you have on your website? Or where can folks go to learn more about prepaids, in general, and CollegeWell’s program in particular?
JD: CollegeWell has a ton of resources available on our website. Our mission is to help families and guide them on a path to college savings. We provide information on all different types of savings plans so that you can choose the path that works right for you. We have experts that we bring into the conversation, folks like yourself, John, and others in the 529 industry, financial advisors who are working with families every day on how to build their college savings strategy. Also, folks who work at our member colleges who run this plan, folks who work in financial aid and admissions, who are obviously right on top of all of the trends in both of those areas and can guide families on college enrollment issues that they’re facing today. So we have articles, we have videos, we have live webinars, recorded webinars. Certainly check CollegeWell.com out.
Savingforcollege.com is another wonderful resource for just general guidance and information on all of the available plans. It’s really important that you understand the nuances of these plans, and understand what state tax benefits might be available to you, in addition to the federal tax benefits, so that you’re picking the solution that works best for you and your family. And both of those resources that I mentioned have a lot of guidance on those topic areas.
JH: You mentioned before you have two boys sort of getting near the college experience. And that’s kind of what drove me in the passion to start Invite Education. My daughters were in this and all of a sudden it changes. When it gets personal, it changes for everybody. Is it changing how you’re thinking about helping families because you’re now kind of getting near this? Is your own experience affecting how CollegeWell is addressing the market and trying to help families?
JD: I always talk about my personal experience and what I’m doing from a savings strategy. I only learned about saving in both types of 529 plans as I got involved with CollegeWell and Private College 529. I wish I had learned about that earlier, but it certainly fuels the conversations. And parents are very interested in learning and hearing about what other people are doing, and how they’re saving, and how much they’re saving. So it absolutely has shaped how I guide and advise parents.
I think the majority of what families are dealing with right now is being overwhelmed about college savings. And so one of the ways that we try to show up in CollegeWell is to guide and comfort families and know that you can do this. There are so many resources out there to help you, like CollegeWell, like savingforcollege.com, like these 529 plans, both savings and prepaid. And to just let families know that they’re not only are a ton of resources, but a ton of experts out there that want to help.
I started my career in financial aid over 20 years ago. And then I started doing information sessions at local high schools, because I realized that families are completely unprepared as they go into this process. And that’s unfortunate, because of all of the resources and tools that are available. So I left working in a financial aid office and started going out and talking to families on a full-time basis. And I’ve stayed on that path ever since, because I’m just so passionate about this. College doesn’t have to be as expensive, especially if you plan early. And I say what you say all the time, John, which is a dollar saved is a dollar less that you might have to borrow, and everybody’s looking for less debt.
JH: Your passion has driven you to a spectacular career in helping families. But at the end of the day, what’s so interesting to me is that basically the process of planning, paying, saving for college hasn’t changed all that much in the last 20-25 years. The systems are there, but everyone’s still confused. And so your programs and our programs, what we’re trying to do at MyCollegeCorner.com, and what others are doing, is trying to demystify that whole process.
I appreciate you taking the time to be with us today. Is there anything else that we should talk about?
JD: I think one of the most important things about 529 plans that some forget, or are not aware of, is that they have really great gifting programs. One of the best ways to pay for college is to involve family and friends. Family and friends want to get involved. These are the kind of gifts that even students appreciate. So check out 529 gifting opportunities within the program that you participate in. Virtually every 529 plan has unique links where you can share that with grandparents, aunts, uncles, family and friends around the holiday season, around birthdays, to say “hey, instead of that toy or clothing item that they might not appreciate in a year or two, how about saving for college?” It’s a really simple and easy thing to do and people should take advantage of it.
JH: That’s a great place for us to wrap up. Thank you for bringing that up. Joanne, thank you so much for taking the time to be here today. CollegeWell is a great program. You’re a great advocate for the programs.
JD: Thank you so much.
JH: That’ll do it for this edition of My College Corner’s “Ask the Expert” with today’s guest Joanne Dashiell, the Chief Marketing Officer at CollegeWell, the Private College 529 prepaid program.