The 529 plan has provided tax benefits for years. Now a growing number of colleges and universities are using it as a recruiting tool.
Hundreds of schools, including Stanford University and Duke University, are offering tuition discounts, prepaid plans with extra incentives and even scholarships for families that put money aside for higher education in 529 plans.
"From the school's standpoint, it's a very effective recruiting tool," says Joe Hurley, publisher of Savingforcollege.com and author of "The Best Way to Save for College."
| More from WSJ.com: |
• Your Tax Bill: How McCain, Obama Differ
The Law of Household Economics
• Where Does Your Money Go?
529 plans are available in nearly every state and are named for the section of the Internal Revenue Code under which they were created.
One perk associated with 529 plans is a tuition-rewards program from SAGE Scholars, an education finance company, that's available to participants in the Pennsylvania and Wisconsin 529 plans. Similar to a frequent-flier program, reward points are tallied quarterly at 1.25% of the total account value. Each point - which can come from select CDs, annuities and 401(k)s in addition to 529s - equals a dollar toward tuition at 213 member schools. Families can rack up as much as a full year's tuition, if spread over four years. The average discount for students entering in fall 2007 was $6,192, or $1,548 a year.
Participating schools range from Drexel University in Philadelphia to lesser-known institutions such as Augustana College in South Dakota, and 10 more schools joined in the past 11 weeks. By signing up, colleges gain access (with account-holders' permission) to the mailing addresses of 115,266 high school students mulling their higher-education options.
SAGE Scholars says it's in talks with three other states about offering rewards to their 529 account-holders.
"[Private colleges] really need to find ways to recruit families who, first of all, really appreciate the value of a private education, and secondly, can pay for some or all of it," says James Johnston, chief executive of SAGE Scholars.
Another 274 schools get their names out via the Independent 529, a savings plan administered through teachers' pension fund TIAA-CREF and run by a consortium of the schools themselves. Established in 2003, the I-529 is a prepaid plan that provides a guaranteed rate of return above the expected increase in tuition.
While the majority of schools provide an additional 0.5% return, meaning a family could pay 0.5% less than today's sticker price for tomorrow's tuition, Dickinson College in Carlisle, Pa., recently boosted its discount to 4% from 1%. With annual tuition expected to balloon to $90,830 by 2023 - a steady 6% increase every year - parents will need to put away just $20,545 now to lock in a year's tuition at Dickinson.
Signing up for a given school's discount under the Independent 529, of course, doesn't guarantee admission, just good rates if your kid gets in. You can put your savings toward any school in the program, which is growing by 10 to 15 schools a year, according to Nancy Farmer, president of the Tuition Plan Consortium.
Dickinson is hoping other schools follow suit and increase their own discounts to make 529 savings plans more attractive.
| More from Yahoo! Finance: |
• Graduate School: Worth Its Rising Price Tag?
• What Changes in College Financing Mean for You
• Parents: How to Help Your New College Grads
Visit the College & Education Center
Robert Massa, Dickinson's vice president for enrollment and college relations, says the public needs to stop focusing on financial aid as the solution for the rising cost of education. "Unless we incentivize savings, we're going to find ourselves in 10 to 15 years with people who cannot afford our prices, which means we're going to find ourselves having to fundamentally change the way we deliver education."
Public universities haven't been quite as quick to catch on with 529 perks. Washburn University in Kansas partnered with the state's Learning Quest Education Savings Program in 2005 to offer $1,000 scholarships to students with the 529 accounts and in-state tuition to out-of-state account holders. But Al Dickes, the school's dean of enrollment management, said less than 10 such scholarships are actually dispersed each year, in part for lack of student interest.
Missouri has had better luck with its MOST scholarship, a $500 award linked to the state's 529 plan. Launched in November 2006 after Treasurer Sarah Steelman approached school presidents, all the state's public universities are now enrolled in the program. The last one signed up earlier this month.