Illinois Freezes Payments To Its Prepaid 529 Plan

Wednesday, December 14, 2011 08:13
Illinois Freezes Payments To Its Prepaid 529 Plan

Tags: 529

Ominous news from one of the most battered of the nation's 529 college saving plans, which -- like many American families -- have fought to boost returns to keep up with tuition.

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Illinois has stopped accepting new money into its prepaid 529 program and is now looking for ways to retool the fund before reopening it.


The problem is classic. Unlike open-ended funds, the plan needed to make concrete performance goals in order to keep up with the cost of attending Illinois schools.


But because the market went against it at a moment when schools were raising their tuition and other costs, its manager decided to gamble on exotic strategies to fill the gap.


The fund is now about $1 billion behind on its long-term obligations.


Illinois families have been soured on this, since the disaster reveals that while "prepaid" 529 arrangements are sold as being able to cover the future cost of tuition, nothing is guaranteed.


The schools are being brought into negotiations to save the fund.


Meanwhile, it's likely that there are other surprises like this lurking in the $140 billion 529 world, where a profusion of programs has fed confusion and worse. 

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