Saving plans sound despite bad economy, leaders say
Michigan’s two college savings programs remain sound investments, despite the struggles with the stock market, leaders said Tuesday.
The Michigan Education Trust (MET) and the Michigan Education Savings Program (MESP) have seen modest growth in the economic downturn — up 1 percent and 10 percent from 2007, respectively, according to the state. And changes in the tax code, for this year only, may make MESP more inviting for families wanting to save early for college.
Families with questions about the Michigan plans are invited to talk with experts Wednesday in a live Web chat. Robin Lott, executive director of MET, and Renee Hill, program manager for MESP, will be available for a Web chats on WXYZ TV’s Web site from noon to 1 p.m. and again from 5- 6 p.m. today.
To participate, go to www.wxyz.com. The experts will provide verbal responses to questions typed into the chat window or called in to (248) 356-0077.
MET is a guaranteed tuition plan that allows parents to pre-purchase tuition at today’s rates for state universities and colleges. MESP is a 529 savings program that is investment-based and where money can be used to pay for tuition, as well as books, supplies, required fees and certain room and board costs at any qualified institution in the nation.
Parents and guardians should consider both when planning for a child’s future to reap the benefits of both, Hill and Lott say.
“With MET you are locking in the cost of tuition today and MESP can help you pay for all the other costs, (such as) room and board and fees and laptops,” Hill said. “There’s an opportunity for parents who have a long investment time frame. And for those who don’t, we still have very conservative options available.”
MET has sold 89,000 contracts; 35,000 have been paid out and a little over 15,000 are being paid out. On average, 3,500 contracts are sold a year, Lott said. The latest annual actuary review of the program in September found that program is sound, Lott said.
“It’s good to see the plan is adapting and responding to the economic crisis,” said Dennis Pace, 58, an advertising director from Dimondale who started an MESP account for his 3-year-old grandson two weeks after he was born.
Tuition on average among Michigan’s public universities increases 7.3 percent a year, Lott said. And if families can buy tuition contracts at today’s prices, the savings can be considerable, Lott said. “I think most folks have realized that tuition in Michigan doesn’t go down,” Lott said of the program’s growth.
For the MESP program, Michiganians have invested $1.65 billion in the program through more than 211,000 accounts, Hill said.
Due to changes in the tax code, investors in the MESP program will be allowed to change investment options two times in 2009, instead of once. This means families with students nearing college age, for example, can move into more conservative investments.
One MESP investment option guarantees the principal plus interest.
The latest investment options might be more helpful for parents of teens, Pace said, but “are great moves. That would make it more appealing for more parents. .. The longer you wait (to save), the more difficult it is.”
The IRS also has increased flexibility in the types of college-related purchases the money can be used for — laptops, most computer software and Internet service are now permissible.
Both plans provide a state tax deduction for Michigan residents and tax-free growth if used for qualified college expenses.
Michigan is encouraging families to consider investing at a time when other states’ 529 plans haven’t fared as well. Alabama’s prepaid tuition plan suffered significant losses and its board froze enrollment Tuesday over fears it wouldn’t be able to pay out tuition in the future.
