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American Morning

Tuition Squeez

Aired December 10, 2003 - 07:45   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


SOLEDAD O'BRIEN, CNN ANCHOR: The rising cost of college is a crushing financial burden for many parents. Nineteen states are trying to help by letting you lock in tomorrow's tuition prices today, but even the best laid prepaid plans can go awry. Some states can't afford to maintain these programs. So, what do parents do now?
Joining us this morning with a little advice is Lauren Young. She's the personal finance editor of "Business Week."

Good morning. Nice to see you.

LAUREN YOUNG, PERSONAL FINANCE EDITOR, "BUSINESS WEEK": Hi, Soledad.

O'BRIEN: It's really complicated for some parents, and we're going to kind of walk through it.

YOUNG: OK.

O'BRIEN: Parents can contribute to these prepaid plans monthly. How exactly does it work?

YOUNG: Well, you're locking in, as you said, tomorrow's tuition prices today. And it really varies from the states. For example, in Maryland and in some other states, you can pay as little as $68 a month for a newborn, and then, you know, 18 years from now when it's time for them to go to college, tuition will all be paid for.

O'BRIEN: Many of these states, though, say they can no longer afford to maintain these programs. They're very expensive, because we've seen the rising cost of college tuition. Even over the last five years, some of them have gone up 40 percent.

YOUNG: That's right. I mean, we really have two problems here, too. The stock market has not done well until this year, but state treasurers were really not planning on that happening. And so, now they've got serious, serious shortfalls. Five states have suspended new enrollment in their plans, including Ohio.

O'BRIEN: There are many people who say certainly for low-income families, and in many case middle-class families as well, if they do not have this option, that could make the difference between children in that family going to college or not. What's your advice for a parent?

YOUNG: Well, they're still really good deals. And the experts I have spoken to have said that, you know what? Most of these are backed by the full faith and, you know, credit of the state. So, the chances of them not honoring that are pretty slim. Having said that, you really want to look and do your research. Get the annual report from these programs. Find out how they're investing the money. And find out, you know, what the finances are. As we know, states across the nation, really some of them have big problems and some of them are actually doing OK.

O'BRIEN: And some prepaid plans will let you pay for or save money toward college tuition, but nothing beyond that. So, you really have to know exactly what you're saving for. My question there would be: Does that mean that you can still have that chunk of money and get financial aid to pay for all of the other miscellaneous expenses? We all know college is expensive across the board.

YOUNG: That's an excellent, excellent question. With tuition up 40 percent in the past five years, yes, these programs are great. But then when it's time to pay for housing and food and, you know, transportation back and forth, that can be really expensive. These plans sometimes actually hurt you when it's time to get federal aid, because the way that they're looked at on a federal level, they're kind of awarded as scholarship money. So, they really reduce your chances of getting a really good financial aid package.

O'BRIEN: We don't have much time. 529, you think that's still a good idea of investing in the 529 plan?

YOUNG: These plans are still a good deal, but you really, really want to do your research.

O'BRIEN: Lauren Young from "Business Week," thanks. Good advice for parents. I've got young kids. It's a little scary at this point. Thank you. Appreciate it.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.







Aired December 10, 2003 - 07:45   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
SOLEDAD O'BRIEN, CNN ANCHOR: The rising cost of college is a crushing financial burden for many parents. Nineteen states are trying to help by letting you lock in tomorrow's tuition prices today, but even the best laid prepaid plans can go awry. Some states can't afford to maintain these programs. So, what do parents do now?
Joining us this morning with a little advice is Lauren Young. She's the personal finance editor of "Business Week."

Good morning. Nice to see you.

LAUREN YOUNG, PERSONAL FINANCE EDITOR, "BUSINESS WEEK": Hi, Soledad.

O'BRIEN: It's really complicated for some parents, and we're going to kind of walk through it.

YOUNG: OK.

O'BRIEN: Parents can contribute to these prepaid plans monthly. How exactly does it work?

YOUNG: Well, you're locking in, as you said, tomorrow's tuition prices today. And it really varies from the states. For example, in Maryland and in some other states, you can pay as little as $68 a month for a newborn, and then, you know, 18 years from now when it's time for them to go to college, tuition will all be paid for.

O'BRIEN: Many of these states, though, say they can no longer afford to maintain these programs. They're very expensive, because we've seen the rising cost of college tuition. Even over the last five years, some of them have gone up 40 percent.

YOUNG: That's right. I mean, we really have two problems here, too. The stock market has not done well until this year, but state treasurers were really not planning on that happening. And so, now they've got serious, serious shortfalls. Five states have suspended new enrollment in their plans, including Ohio.

O'BRIEN: There are many people who say certainly for low-income families, and in many case middle-class families as well, if they do not have this option, that could make the difference between children in that family going to college or not. What's your advice for a parent?

YOUNG: Well, they're still really good deals. And the experts I have spoken to have said that, you know what? Most of these are backed by the full faith and, you know, credit of the state. So, the chances of them not honoring that are pretty slim. Having said that, you really want to look and do your research. Get the annual report from these programs. Find out how they're investing the money. And find out, you know, what the finances are. As we know, states across the nation, really some of them have big problems and some of them are actually doing OK.

O'BRIEN: And some prepaid plans will let you pay for or save money toward college tuition, but nothing beyond that. So, you really have to know exactly what you're saving for. My question there would be: Does that mean that you can still have that chunk of money and get financial aid to pay for all of the other miscellaneous expenses? We all know college is expensive across the board.

YOUNG: That's an excellent, excellent question. With tuition up 40 percent in the past five years, yes, these programs are great. But then when it's time to pay for housing and food and, you know, transportation back and forth, that can be really expensive. These plans sometimes actually hurt you when it's time to get federal aid, because the way that they're looked at on a federal level, they're kind of awarded as scholarship money. So, they really reduce your chances of getting a really good financial aid package.

O'BRIEN: We don't have much time. 529, you think that's still a good idea of investing in the 529 plan?

YOUNG: These plans are still a good deal, but you really, really want to do your research.

O'BRIEN: Lauren Young from "Business Week," thanks. Good advice for parents. I've got young kids. It's a little scary at this point. Thank you. Appreciate it.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.