College Savings

A handful of states have adopted tuition prepayment programs, which allow parents to pay in advance for tuition at participating colleges on behalf of a designated child and guaranteeing to cover the child's future tuition bill at one of these colleges, no matter how much costs rise. By allowing purchasers to "lock in" today's prices, these programs are intended to ease families' concerns about whether they will have enough money in the future to pay for their childrens' college expenses. This report (1) describes how these program operate and the participation rates they have achieved, (2) assesses participants' income levels and options for increasing the participation of lower-income families, and (3) discusses the key issues surrounding these programs.

GAO found that: (1) all seven of the state tuition prepayment programs reviewed emphasize the importance of effective advertising and marketing, a positive public perception of the program, simple and flexible program features, and affordably priced benefits; (2) most participants in the state tuition prepayment programs come from middle- and upper-income families; (3) two options for increasing program participation among lower-income families include a sliding-scale fee and a tax credit, but program officials believe that a tax credit would pose too much of an administrative burden; and (4) the major issues concerning the state tuition prepayment programs are the potential effects they may have on students' educational choices, their appeal to middle- and upper-income families, their value as an investment for purchasers, the degree of risk they pose for states, and the applicability of federal tax provisions to the programs.