Busting the Top 7 Myths About Prepaid Plans
When it comes to saving for college using a prepaid plan, don’t allow inaccuracies, misconceptions and myths to stand in the way of getting started. To help you better understand the plans and how they work, here are some common myths and the facts that bust them:
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Myth #1: If I get a scholarship, I can’t use my prepaid plan (or may not receive the full benefits of my plan).
Facts:
False! As a general rule, prepaid plans can work along with any scholarships you receive to cover as much of your educational costs as possible. For example, if you qualify for a Florida Bright Futures Scholarship, in most cases, your scholarship, along with benefits payable from your Florida Prepaid Plan, can both be applied to your student account. If there are any excess funds in your account, they can be used for other school costs, like books.
Alternatively, you can elect to use your scholarship and request a “scholarship refund” for any benefits that would have been payable from your Florida Prepaid Plan. Under this option, your scholarship refund is equal to the value of any prepaid plan benefits that would have been paid to your school.
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Myth #2: I have to go to college right after I graduate to use my prepaid plan.
Facts:
Again, false. Depending on which plan you purchased, benefits are generally good for 10 years after the projected year of college enrollment listed in your prepaid application. So you want to take a year off to work? Or maybe you want to backpack through Europe? Go for it!
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Myth #3: If I buy a Prepaid plan and my student decides to go to an out-of-state university, I lose my investment.
Facts:
Absolutely not! If your student decides to go to an out-of-state university, you can most definitely still use your plan! While most prepaid plans are designed to be used at state colleges or universities, the value of the plans can usually be used at other schools nationwide. If your child decided to attend a different school, many state prepaid tuition plans including Florida Prepaid Plans will pay out an amount equal to the weighted average tuition and contractually specified fees at your state’s public institutions, not to exceed the actual tuition and fees you incur.
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Myth #4: Prepaid plans can only be used to save for public schools.
Facts:
Even if you save with a traditional prepaid plan and your child decides to attend private school, you can usually transfer an amount equal to what would be paid to the public school your plan is designed for — you’re just responsible for the difference. You can save to cover any expected shortfall by supplementing your prepaid plan with a 529 Savings / Investment Plan.
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Myth #5: I’ll lose all of my prepaid plan savings if my child doesn’t go to college.
Facts:
You won’t lose everything, but if your child decides not to go to college and you can’t pass it on to a sibling, most prepaid plans will only refund the principal. In some cases, you may be charged a cancellation fee.
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Myth #6: If you open a Prepaid Plan, you can’t have another 529 plan.
Facts:
You can also enroll in a 529 college savings plan. This might come in handy since a savings plan typically covers additional expenses that a prepaid plan doesn’t, like textbooks and supplies.
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Myth #7: If I move out of my current state, I will lose my plan.
Facts:
State residency is required to purchase a prepaid plan, but it isn’t required to keep one. If you or your child move out of state at some point, no problem — your plan will continue as if you never left the state where the plan was purchased. If your child attends a state college or state university where the plan was purchased, they will be considered an in-state student.
Hopefully this list of facts has helped to clear up some of the misinformation about prepaid plans. If any of these truths have surprised you, make sure you spread the word. You’re probably not the only one.
