The Chicago Family Law Blog

Paying for Your Child's College: IL Prepaid Tuition or 529 Plans?

For many, the surest path to prosperity is a college education. Sure, a degree -- even a recently acquired DePaul law degree -- guarantees nothing. Still, the odds indicate a higher earning capacity and a (hopefully) easier life if one graduates from an institution of higher learning. Like most parents, you'll want to ensure that your children get to enjoy those benefits.

If you're absolutely broke, and will be absolutely broke when your child goes to college, financial aid will cover most, if not all, of your child's expenses. If you're filthy rich, paying tuition won't be an issue either.

But the vast majority of Americans fall somewhere in between. If they fail to plan ahead, their children could graduate with an albatross of student loan debt suffocating their hopes and dreams.

Illinois has two great programs designed to help families plan ahead to prevent saddling students with excessive debt burdens:

  • The Illinois Prepaid Tuition program has been reinstated after a short hiatus undertaken to allow for review of previous investment strategies. The program allows parents to lock in present-day tuition rates for Illinois state schools and prepay the tuition. With college costs and inflation on the rise, that could present a substantial discount on the tuition bills when your child begins college in 2020. The money paid into the program is invested in order to cover future tuition hikes.
  • A similar program is the federal and state-sponsored 529 Plan. It allows parents to set aside funds, with tax advantages, for their child's education. These plans can either be advisor-managed (where your funds are invested by a professional) or direct-purchase (where your role is a bit more hands-on). Think of this as a savings account for your child's education that can be invested to increase the amount available beyond your initial deposits.

Divorced parents should be especially aware of these two plans. The financial aid equation becomes even more complicated if the parents are divorced, as alimony and child support are factored into the FAFSA equation. There is no way to tell whether that few hundred dollars per month in support from your ex-spouse is going to affect your child's financial aid situation, especially if college is a long way off. Consider incorporating contributions to one of these plans into the divorce decree. One possibility is both parents contributing monthly, in proportion to their income.

The consequences of failing to plan ahead can be devastating to your child's future. Just turn on the evening news: Students saddled with excessive student loan debt and no job prospects are buying fixie bicycles and occupying city parks. The question that you need to consider is: Would you rather your child grow up to be an unemployed activist or a yuppie Wall Streeter? Make your choice and start planning now.

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