Prepay Way (Pre-“Pei Wei”)

So I like Asian food. Specifically, I think my umami taste buds are well-developed and there are times I just crave a sushi roll dipped in soy sauce, or a teriyaki flavored dish, or just some good pan-Asian cuisine.

Which makes the current restaurant environment in Florida very interesting.

I’m getting hungry!

In Florida, we tend to have a few distinct types of Asian restaurants — the American style upscale (like P.F. Changs), the all-you-can eat buffets, the sushi restaurants, and a few hole-in-the-wall take-out places.

Which makes Pei Wei an interesting choice. Billed as “fast casual” but customizable, it offers fresh cooked-to-order food at a reasonable (?) price. So why haven’t I tried it? Good question, guess I am stuck in a pre-Pei Wei world. Have you been? What am I missing? It is worth my trying it?

Now while I haven’t been to Pei Wei, I have used a prepay tuition plan (see what I did there?) for my children’s education expense, and these are great programs!

Really referred to as 529 Plans, these tax-advantaged plans come in two flavors: College Savings Plans and Prepaid Tuition Plans. Let’s talk about the differences between them:

  1. College Savings Plans are tax-protected ways to save for college. You make an investment and the money you put into the program is used to purchase stock or other investments (depending upon your risk tolerance and timeframe). The money you earn from your investment is not subject to Federal or State tax as long as you use the amount of your total program to pay for college expenses. This can be a great way to save money if you aren’t sure where a student will go to college as these programs tend to be generic and allow enrollment anywhere.
  2. Prepaid Tuition Plans are programs where you can pre-purchase a fixed percentage of tuition amounts using today’s cost. These programs usually then guarantee that you will then receive whatever that percentage is of tuition when you attend college, no matter how much tuition has grown in the meantime. These programs tend to be limited to a set of colleges (maybe by state or by type), so if you choose to go to some other school not in the list you can get your money back, but it may not be at the same investment rate that you might have had under another program.

Essentially the choice between these two types of programs boils down to two factors: do you think costs of tuition will rise faster than the amount you can get if you invest, and do you know where you will be going to college (or are you willing to limit your choice to a specific list).

College tuition rates historically have increased higher than inflation (and certainly higher than investment rates). There are some exceptions to this. Most public institutions of higher education in Florida (including both state colleges and state universities), for example, haven’t had a tuition increase since 2013-14 (over 7 years ago). This means that if you bought into the Florida Prepaid Tuition plan 7 years ago, your investment would still be worth the same amount today as it was then. This is part of the reason that prices have dropped for the program and Florida Prepaid returned $1.3 billion to current customers.

All of this said, making an investment in one of the programs is a great choice for college savings. A huge benefit of the program is that the amount of the program that you have saved is not counted as a scholarship for financial aid purposes; instead the amount is simply reported as an asset (like any cash, savings or stock account) by the person who owns the account. The important part there is the name of the owner; usually this is a parent or guardian who owns the account, not the student. The student is listed as the beneficiary of the account, but since the investment is not in her / his name, there is no need to list this as a student asset (or scholarship).

For my Take Stock in Children / Take Stock in College readers, this is REALLY important. Since Take Stock purchases the Florida Prepaid program and names you as the beneficiary, the account is not owned by you, and therefore does not need to be listed either as a scholarship or as an asset you own on your FAFSA. While Take Stock calls the program a “scholarship”, it is a unique one because it does not reduce your amount of financial aid eligibility (like an overaward does).

This exception also exists if someone other than a parent purchases the 529 plan (say a grandparent). There are some wrinkles to consider here (namely related to student income and tax status of the investment) so research carefully before making a decision.

So welcome to the prepay way! These programs serve as a wonderful way to fund your education. I need to run; it’s time to have some lunch – maybe Pei Wei?