The state’s Mississippi Prepaid Affordable College Tuition (MPACT) program is one of the best deal’s going for saving for children’s college education. More than 10,200 Mississippi students have been signed up for the program, with their families contributing $51 million towards the college fund.
“We’re in the middle of an enrollment period now that goes through the end of the month,” said MPACT director Barry Simmons. “We have 400 signed up during this fall’s enrollment.”
About a third of the families have chosen the lump sum payment option to prepay tuition. The rest have chosen annual or monthly payments to the program that locks in today’s tuition rates for future college students.
Simmons said that average tuition costs are going up at a rate of bout 7% per year in Mississippi. Since CD rates are lower than that, it appears to be an advantage to lock in today’s tuition rate. Another advantage to MPACT is that payments are deductible on state income tax. Participants can write off deductions on their state income tax return which reduces income taxes that must be paid.
MPACT pays tuition only, not for room and board and expenses such as books. So while it may not be the entire answer to saving to put children through college, it is one element that can help parents get ahead.
“There is no one absolute best way for everyone to save for college, but we think we are an important part of the mix,” Simmons said. “We allow you to guarantee the tuition portion of the college education. With an MPACT contract, tuition is prepaid. You don’t have to worry about what the market is doing or what inflation is doing.”
Another instrument people use for college savings is savings bonds. Simmons said savings bonds are an excellent way to save for other college expenses such as books, room and board. But a savings bonds doesn’t guarantee coverage of any particular expense.
MPACT also allows federal income tax deferrals on growth on the value of the investment. In most cases students aren’t making more money than the standard tax deduction, so no taxes would be due on earnings on the investments that are used for the tuition expenses.
Another advantage of MPACT is it encourages students to stay in Mississippi to attend college.
“Anything that can be done to encourage more of our citizens to get a college education, and to encourage our best and brightest students to stay in Mississippi, is going to help the state economy and the business environment,” Simmons said.
If children do decide to attend school out of state, the MPACT savings can be used at any accredited college anywhere in the country. The out-of-state schools are paid based on average costs at public colleges in Mississippi.
Currently there are 18 states besides Mississippi that have a prepaid college tuition plan, and another 20 states that have some other form of college savings plan.
If a child doesn’t attend college, the savings can be left in the MPACT plan for up to 10 years if the child changes his or her mind. The savings can also be transferred to a sibling. If no children end up going to college, the money is refundable.
Simmons said it isn’t just wealthy parents who are prepaying college tuition. Of participants who answer optional questions about family income, about two thirds report a family income of less than $80,000. Eight percent report under $30,000 in annual family income.
“Our junior college prices are very affordable even for low-income people,” Simmons said.
Another college savings option is the education IRA. Earnings on education IRAs are not taxed, but there is a limit of $500 contributed per child each year. As Simmons point out, even with good rates of return, an investment of $500 per year isn’t going to go far. So while the education IRA is a good option, it shouldn’t be the only savings instrument considered.
“There are multiple ways to save for college,” Simmons said. “People who can afford to do so should diversify and be involved in many of them. MPACT should be part of the mix to guarantee the basic costs at no risk.”
Purchasers of an MPACT contract must be the parent, grandparent or legal guardian of the student beneficiary. The beneficiary must be younger than 18 years of age at the time of contract purchase, and must be either a resident of Mississippi at the time of purchase or a nonresident whose parents, grandparents or legal guardians who are Mississippi residents. Either the purchaser or the beneficiary must be a Mississippi resident.
Corporations may purchase MPACT contracts, provided that the beneficiary is named at the time of purchase and meet the qualifications in the paragraph above. Nonprofit corporations or trusts may purchase contracts for a beneficiary to be named at a later date. Corporations may also make contributions to the MPACT Trust Fund.
The receipt of MPACT benefits may affect a beneficiary’s qualification for or receipt of need-based financial aid. But MPACT benefits should not impact the student’s qualification for merit-based financial aid such as academic or athletic scholarships.
The next MPACT open enrollment period ends Nov. 30, 1999. Enrollment booklets and application forms can be requested by calling 1-800-987-4450 or visiting the Web site www.treasury.state.ms.us. The Web site contains more information about the program including different programs from junior and senior colleges, and estimates of monthly payments or lump-sum payments necessary for the different savings programs.
Contact MBJ staff writer Becky Gillette at email@example.com.