MARTIN, Tenn. — The tax break built into the state’s new pre-paid college tuition program should encourage parents to take advantage of the plan, a University of Tennessee financial aid officer said Monday.
UT-Martin’s Randy Hall said his office hasn’t received any calls about the new plan but likely will after it receives more publicity.
Meanwhile, UT’s Social Science Research Institute this week is conducting a statewide survey to measure the public’s awareness of the new program.
“We’re going to find out if they would be likely to participate and, if so, what factors would make them more likely or less likely to participate,” UT-Knoxville political scientist and pollster John Scheb said.
The survey was requested by state Treasurer Steve Adams, whose office will administer the program. Adams said his office has received more than 600 calls from parents wanting to invest in pre-paid college tuition.
“It looks like this loan is something you could do already — buy a good mutual fund, get a good return — but because there’s a tax advantage at the end, it’s going to make people’s tentacles go up early and invest in it,” Hall said.
“It’s a great deal for parents with a 2-year-old,” said Rich Bishop, director of financial aid at UT-Knoxville. “Sixteen years down the road, they’re going to save a lot of money.”
Earned interest on the pre-pay fund won’t be subject to federal income taxes until it is paid out. Then, it will be taxed in the student’s income bracket, which likely would be much lower than the rates the parents pay.
The plan allows parents or grandparents to invest in the fund now for their children’s future college tuition — at state or private schools, in-state or out-of-state.
A $940,000 loan to start the program was approved Wednesday by the State Funding Board. The state plans to invest the initial loan and early payments by parents and use the interest to cover inflation and administrative costs.
Parents would buy units of the fund, now priced at $22. Officials said roughly 100 units would be needed to cover the average cost of one year’s tuition and fees at state colleges and universities this year. As tuition increases, the cost of buying a unit will increase.
“If parents invest in the pre-pay fund, they’re going to be better prepared to pay their expected contribution for the child’s college education,” Hall said. The ratio of state-to-family contributions toward a persons’ education is 65-35.
“Quite honestly, we’ve seen a lot of families who just don’t have it,” Hall said. “Based on their level of income, they really should have it, but they’ve put their priorities elsewhere.”
Hall said the program probably would work best if it provided for a payroll deduction. “There are a lot more questions than we have answers, but generally anything that encourages parents to prepare ahead of time for higher education — getting into a plan that has tax advantages and hedges against inflation — is a good plan.”
Scheb said those are the types of issue the UT survey will address.
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Contact: Randy Hall (901-587-7036)
Rich Bishop (423-974-3131)
John Scheb (423-974-7047)