Explore how MET can help you meet your goals during Financial Literacy Month
April is Financial Literacy Month, a fine time to consider how Michigan Trust (MET) 529 prepaid tuition can fit into your family's overall financial plan.
Of course, saving for college is just one priority for most families. And even then, MET serves as a conservative part of what ideally is a well-rounded personal savings portfolio. MET contracts cover tuition and mandatory fees, which represent 33% to 50% of the total cost of college.
So, with the aim of further boosting financial literacy, here are some considerations when it comes to MET and saving for college.
• The earlier, the better. Starting a college fund is a primary goal for all parents and caregivers – or at least it hopefully is. But families can also have many other financial concerns, such as saving for an emergency, down payment on a house or putting money away for retirement.
In other words, it can get complicated, even when parents have the best of intentions to begin building a college savings nest egg. That said, financial planners consistently point out that parents should aim to put time on their side by starting to accumulate savings as early as possible.
That’s a message that has registered with many Michigan parents. According to a 2018 statewide survey commissioned by MET, of those who are saving for college, half started when their oldest child was between 0 and 3 years old, and 8 in 10 began saving by the time their oldest child was 10.
The MET Board of Directors projects that college costs will increase dramatically over the next 18 years, including 5.5% for 2020, 5% for 2021 and 4.5% thereafter. So locking in prices at today’s rates – as MET lets contract purchasers do – is a surefire way to come out ahead financially. The sooner you buy prepaid tuition, the greater the benefits. Think of it this way: Wouldn’t you jump at the chance to pay today’s price for a new car that you know you intend to purchase 18 years in the future?
MET’s survey also found that the No. 1 reason for not saving for college is not having enough money, and that 57% of non-savers feel “overwhelmed” by the prospect of setting money aside. For those who absolutely, positively can’t come up with a big chunk of cash to start a college savings account, MET’s Pay-As-You-Go purchase option is a possible solution. Pay-As-You-Go allows an initial purchase of a single credit hour versus an entire semester’s worth of tuition. After that, you can add as little as $25 to it whenever you want.
MET also sells contracts through lump-sum and monthly purchase plans that require minimum purchases of a semester’s worth of tuition.
• Diversify. MET proceeds pay for tuition and mandatory fees, which can represent a huge chunk of college costs but not the only one. But while tuition rates are nonnegotiable, expenses such as room and board are typically easier to control. For example, students might have the option of living rent-free with their parents, and they can always adhere to a strict food budget.
Still, students will inevitably incur some room and board expenses. Of Michigan parents saving for college, 55% are using a traditional bank savings account, according to MET’s research. They could potentially earn a better return on their savings earmarked for room and board with a Michigan Education Savings Program (MESP) account. Like MET, MESP is a Section 529 college savings program administered by the Michigan Department of Treasury. (Section 529 plans are named after the part of the Internal Revenue Code that allowed for their creation.) MESP account holders can choose from various investment options in which their savings grows tax-free. And by the way, withdrawals from both MESP and MET are not taxed when used for qualified higher education expenses. Plus, contributions to both plans are deductible on Michigan tax returns.
• Beat the clock. If you’re considering a MET purchase, acting before May 1 will save you a few bucks. On that date, prices will increase 3% for limited-benefits contracts and 5% for community college contracts. Those prices will remain in effect through Sept. 30, 2020.
That means until May 1, for example, that purchasers of Pay-As-You-Go contracts will continue to pay $612 for a credit hour of tuition under a full-benefits contract, which covers full payment of tuition and mandatory fees at any Michigan public university; $493 per credit hour under a limited-benefits contract, which covers up to 105% of the weighted average tuition of Michigan’s public four-year universities; and $119 per credit hour for a community college contract.
The pending price increases are the result of an annual review that is intended to ensure the long-term viability of Michigan’s 32-year-old prepaid tuition program.