Prepaid tuition plans in a bad economy

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The worst case is Alabama. "Here and Now" talks to Larry Menefee — a parent and an attorney in Montgomery, who is saving for triplets — and Mark Kantrowitz, publisher of FinAid.org, a tuition finance information site.

Menefee recently received a letter notifying him the tuition money he’s paid isn’t guaranteed: "Many, many families who showed up at a public hearing about ten days ago were quite bitter and frightened … they didn’t describe exactly what the problem was in any way, or what a solution might be, and I think that very vagueness caused so much anxiety among so many families."

"Our contract in 1992, we purchased it for $4600 per child, and the promise is to pay tuition and fees at any state-supported school in Alabama; or if you go out of state, they would pay the average Alabama tuition. Those contracts now sell in the range of some $20,000 to $22,000 dollars."

Menefee isn’t sure his kids will get the money he’s already paid into Alabama’s pre-paid tuition program, where parents hand money to the state, which invests it.

Many parents also put money into what’s called 529 tuition programs, which are also seeing huge drops. Unlike pre-paid state plans, the investor controls 529 plans, much like a 401k.

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