Financing a College Education: A Taxing Dilemma

Abstract

The cost of sending a child to college in the United States is rapidly increasing. As a result, the need for families to plan ahead to meet this cost has never been greater. Paramount in making those plans is the consideration of factors relating to the proper vehicles, the investment risk, the rate of return, and the tax consequences of various plans thereby providing for optimization of a family's resources to better prepare for the cost of tuition increases, lodging, application fees, preparatory seminars, and exams. These increased costs have presented to lower and middle class families, as well as to the higher education community, an economic dilemma that challenges the most financially capable. The federal government, state governments, and universities, through the enactment of various types of prepaid tuition programs and incentives, have emerged to become our partners in this challenge. They have involved themselves in helping families plan for, and pay for, the future cost of higher education. This Article will provide an analysis of the structure, the tax consequences, and the tax benefits of some of these prepaid tuition programs.