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On money

Prepaid tuition plan still a good deal

By HELEN HUNTLEY
Published October 16, 2005

The Florida Prepaid College Plan opens for another round of enrollment Monday with prices up 6.5 percent from last year.

Although the program isn't the bargain it once was, it is still a good deal thanks to the peace of mind it offers. Parents and grandparents who have bought more than 1-million contracts love the security of knowing they have paid in advance no matter how high rates go.

Florida's plan, which has $6.5-billion in assets, is the largest in the country.

Critics complain the plan puts a lid on the state's ability to raise tuition since the state guarantees the plan. Proponents, notably chairman and chief champion Stanley Tate, say the plan provides opportunity, sometimes to students who could not afford college otherwise.

Tate is right that encouraging Florida's young people to go to college is good social policy. We'd all benefit if the Legislature would step up and provide the quality improvements universities need instead of relying on tuition increases to pay for them.

I admit I am biased because our family, with help from the grandparents, bought prepaid tuition contracts for our two children years ago. We are glad we did since both of them used every single one of the 120 credit hours included in each contract.

Prices vary with the age of the child and the type of plan. A four-year university plan for a newborn is available this year for $11,002 as a lump sum, $219 a month for 55 months of payments or $79 monthly until the child goes off to college. Would you believe that the same plan cost just $3,796 as a lump in 1988, the prepaid program's first year?

Other tuition options are a two-year community college plan and a combo community college-university plan. Plans covering local fees and dormitory rentals also are available.

This year's pricing assumes that tuition will continue to increase at about 6.5 percent a year. The installment options have a built-in interest charge of 4.86 percent a year.

Plans can be used at Florida's public colleges and universities and at accredited private and out-of-state colleges, although the benefits are based on public tuition rates. If the child gets a scholarship, the prepaid money can be used for other expenses. As long as the money is used for qualified educational expenses, the payout is tax-free.

Anyone can purchase a plan, but either the child or the child's parent must be a Florida resident. Enrollment ends Jan. 31 and reopens the following October with new prices.

Keep in mind that tuition and fees are just one part of college costs. At the University of South Florida, they are 21 percent of this year's estimated $14,460 total cost of attendance.

Parents who want to save on their own instead of or in addition to the prepaid plan can sign up for the state's College Investment Plan, which has no residency requirement. Information about both plans is available at www.florida529plans.com or by calling toll-free 1-800-552-4723.

My brother and his wife are 84 and 82. They have their home, which is paid off, a car and $40,000 in CDs held jointly. If one has to go into a nursing home would they have to spend down the CDs before Medicaid would kick in, leaving the stay-at-home spouse with no cash assets?

No. In Florida, the stay-at-home spouse, who is known as the "community spouse" in Medicaid lingo, is allowed to keep $95,100 in assets. The spouse in the nursing home can have either $2,000 or $5,000, depending on income. Those assets are in addition to the home and one car.

I bought a house in 1999 and sold it last year, paying taxes on the profit, then bought a new house. Since I paid taxes on the profit on the previous house, can I get exemption for the profit on my current house if I sell now even though I won't have lived there two years?

Not likely. You might qualify for a partial exclusion if your move is prompted by "unforeseen circumstances." Disaster, death or divorce definitely qualify. You could instead file an amended return, excluding the gain on your previous house and claiming a refund of the taxes you paid unnecessarily.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to hhuntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified November 7, 2005, 15:30:47]