Many parents are wondering if they should get a Florida Prepaid Plan or another type of savings plan for their children’s college education. The enrollment period is from February 1 through April 30, so now is the time to consider planning ahead and deciding which type of college savings plan is best for you.
So, should you get a 529? Should you get Florida Prepaid? What are the major factors in funding your child’s education?
Financial Life Stages
Parents have an innate desire to care for their children and support them by doing things like paying for college, which is a great thing. However, sometimes things get out of order when you’re doing your finances.
The Foundation Stage
In the Foundation stage, you might be working to get your consumer debt paid off. You’re also building up critical emergency reserves. You need to have a strong Foundation before you can get into the Formation stage and take the next financial steps.
The Formation Stage
Saving for your child’s college education is something that should be done in the Formation stage. Although parents want to start paying for their children’s education, it’s important to prioritize your Financial Foundation before you start a college fund. If you already have your consumer debt paid off and an emergency fund in place, you are free to use any additional funds to start saving for a college education.
What Is the Florida Prepaid Plan?
The traditional Florida Prepaid Plan allows you to lock in tuition rates for any Florida public university or college and can be applied to private colleges or universities as well; in the latter case, you would just be responsible for the difference. It could be a community college, a state school, or a state university, or a combination of two as some students may start at a community college and then transfer to a university.
With the Florida Prepaid Plan, you’re literally prepaying your child’s college education at a presumably discounted rate (assuming tuition costs rise between now and the time your child attends college). This shields you from having to worry about college tuition rates going up, which have traditionally increased at a rate from 5-8% depending on the time period.
Florida Prepaid Rates
What are the rates? Approximately what percent are they per year?
How much you pay into the plan is calculated every year before the enrollment window opens. In addition, you are able to pay 1) in a lump sum; 2) over a 5 year period; 3) monthly installments through high school graduation. There are also several plans to consider including a university plan, a college plan, or even a plan that allows you to purchase 1 year at a time.
For those who already have the Florida Prepaid program, it’s a good idea to keep an eye out on the Florida Prepaid website. Florida Prepaid has reevaluated the costs of tuition and found that it hadn’t increased as much as they had expected and are giving refunds.
What About the Florida 529 Savings Plan?
An alternative to the 529 Prepaid plan is the 529 savings plan. This plan allows you to invest in a tax-favored manner for education funding. The plans are offered by the various mutual funds or insurance companies in conjunction with participating states. Residents in a state that has a state tax typically are lured to their own state-sponsored plan for the potential to get tax-favored investments at the state tax level as well. In Florida, where there is no state tax, residents have merely picked the plan of any state they feel is the best plan. Historically, Florida did not have a very competitive plan relative to other states. The Board of Education and Florida leadership, however, have recently done an excellent job of revamping the Florida 529 Savings Plan, which now has some great funds and can compete with any other state plan.
AllGen’s financial advisors historically recommended 529 savings plans from out-of-state instead of the Florida savings plan to Florida residents. However, with the recent improvements, the Florida 529 savings plan is now very competitive, has low fees, good fund choices, and good flexibility.
It’s important to point out that you can have both a Florida Prepaid Plan and a Florida 529 Savings Plan.
What Happens If My Child Has a Florida Prepaid Plan and Bright Futures Scholarship?
Most universities will use the Florida Prepaid Plan funding first, for tuition expenses. Florida Prepaid doesn’t cover things like transportation, lab fees, or books, but those expenses can be paid for with a student’s Bright Futures Scholarship. If there is anything left over from the scholarship, it can be deposited into the student’s account for housing or other living expenses.
What Are The Differences Between Florida Prepaid Plans and Bright Futures Scholarships?
Florida Prepaid Plans are applicable to most colleges, both in-state and out-of-state, whereas Bright Futures Scholarship are only applicable to in-state colleges. Bright Futures works with both public and private Florida universities; however, the amount paid for private universities will be calculated based on credit hours. So it is unlikely to cover private college tuition in full.
If you open a Florida Prepaid Plan and then move out of state, you can keep your Florida Prepaid Plan. You only have to live in the state of Florida when you open the plan. However, a student must be a Florida resident to receive a Bright Futures Scholarship and can only use the scholarship by attending a Florida college.
Most Florida Prepaid Plans don’t cover much other than tuition. There are add-ons that do cover basic housing costs as well. Depending on the year that you signed up, you can find more information about what your plan covers here. In contrast, Bright Futures Scholarships can be used for a variety of college expenses, including housing, books, and lab fees.
Both Florida Prepaid and Bright Futures can be used during summer semesters.
What Happens If My Child Doesn’t Go to College?
If your child doesn’t go to college, you still have several different options. You can transfer the fund to a different family member and keep those rates going. Also, if they don’t go to school immediately, they have ten years to use it from the expected high school graduation date.
The last recourse is to actually cancel the plan. You can cancel the plan and get a full refund of everything that you put in, except for a $50 administrative fee.
Keep in mind – your refund is only for the amount you put in. There’s no growth, so that’s why it’s almost better to just leave it and see if the child goes to college, or you can transfer it to another family member because you will have experienced the growth therein.
Should I Choose Florida Prepaid?
The real answer is: it depends.
It depends on the age of your child, your risk tolerance, and many other factors. Developing the right strategy is very important as there are multiple variables to consider. The younger your child, the more the 529 savings can make sense as this longer time period can mitigate some of the associated market volatility. You must also consider your personal risk tolerance as well as there is a big difference between locking in a rate guaranteed by the state of Florida rather than looking for greater returns, not guaranteed, via equity investments.
We don’t want to be ambiguous but need to relay the reality that such a decision does depend on various factors. Some folks cannot choose and decide to do both while others have to choose as per their budget. The important piece is that you should be in your appropriate financial live stage to increase the odds of this or any savings plan succeeding.
We hope this is helpful to get you thinking about how to fund college education for your children. We welcome you to come in and have a conversation with us about it.
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