Parents might be wondering if Washington’s prepaid college tuition program is still a bargain.
The long term value of the Guaranteed Education Tuition [GET] program is not such an easy calculation ever since the cost of in-state tuition soared a few years ago. It depends on the age of your children right now and unknown factors, such as inflation and the cost of tuition down the road.
Washington’s prepaid tuition program opens to new investors Friday, Nov. 1.
Experts say if you invest now, it would take six years, possibly longer, for your investment to essentially break even.
That means it’s a much better deal for parents of younger children, and less so for parents of children who are 13 or older, said Rachele Cawaring Bouchand, director of financial planning at Clark Nuber P.S. in Bellevue.
That’s because young children will see many more years of tuition increases before they enroll in college.
Of course, investment returns are not the only or even the primary reason for putting money into the GET program.
Investors are guaranteed that no matter what happens to the stock market or state tuition, they will be able to pay for an academic year of tuition and mandatory fees at the state’s most expensive college or university with 100 GET units. Tuition and fees at less expensive schools cost fewer units and housing is extra.
At today’s price of $172 per tuition unit, tuition at the University of Washington or Washington State University would have to reach $17,200 for investors to break even. The current tuition and mandatory fees is about $12,000.
If your child is a preschooler, it’s hard to beat the return on investment from putting their college money into a GET account, Bouchand said. Her analysis is based on expectations that tuition increases will average 8 percent a year over the next decade or so.
Parents of a baby would need to invest about $7,500 a year for the next 18 years and earn a 5.9 percent annual rate of return on that investment to beat the results of buying 400 GET units at the current price, which would add up to $68,800, Bouchand said.
If your kids are already in elementary school, parents may be able to beat the GET return with some luck and a 3 percent a year return on their investments. The “break even” point for the GET program, in Bouchand’s opinion, is age 13. Investments at that age are no longer a good investment.
Bouchand’s analysis jibes with that of GET program director Betty Lochner, who said parents whose children are six years away from college can still put their money in the GET program and come out ahead.
“The best time to invest is age 6 or under,” she emphasized.
Parents of high school students should find another way to save, Lochner added.
Other financial advisers draw the line earlier. Some don’t recommend GET investment past kindergarten because they believe other investments, such as other 529 college savings plans that are invested in the stock market, are likely to have bigger payoffs.
Troy Sapp, financial planner with Commence Financial Planning in Tacoma, said he wouldn’t recommend GET investments for anyone but families with preschoolers.
“The GET program certainly isn’t as attractive as it once was,” Sapp said in an email. “But that said, I still think it’s quite attractive for very young children.”
The Associated Press contributed to this report.