Navigating the Virginia Prepaid Tuition Plan: A Comprehensive Guide

Saving for college is a significant undertaking for most families. Virginia529 offers several options to help families achieve this goal, including the now-closed Prepaid529 program and the current Tuition Track Portfolio. This article delves into the details of the Virginia prepaid tuition plan, including its historical context, current alternatives, and key considerations for those who may still have existing Prepaid529 accounts.

Understanding the Prepaid529 Program (Closed to New Enrollment)

The Prepaid529 program was designed to allow families to purchase semesters at Virginia public colleges and universities at today's rates, protecting them from future tuition increases. This program guaranteed that tuition and mandatory fees for a full-time course load in a general course of study would be covered at any Virginia public four-year university or college, or 2 2/3 semesters at a Virginia two-year/community college.

Key Features of the Former Prepaid529 Program

Contractual Agreements: Prepaid tuition contracts outlined the payment amounts, payment schedules, and terms for late payments, defaults, withdrawals, refunds, and penalties. They also specified the beneficiary's name and birth date, conditions for beneficiary substitution, and the time period during which benefits could be claimed.
Tuition Coverage: The plan covered a specific number of credit hours, quarters, semesters, terms, or units, as agreed upon in the contract.
Out-of-State and Private Institutions: If a student chose to attend a private or out-of-state institution, the plan would pay the lesser of:
1. The payments made on the contract plus a reasonable rate of return.
2. The average in-state undergraduate tuition and mandatory fees at Virginia public institutions for the same academic semester the benefits were used.
Payment Options: Purchasers could choose from lump-sum payments, initial down payments with installment payments, or installment payments only.
State Guarantee: Virginia legislation provided a financial guarantee to cover Prepaid529's contractual obligations in case of a funding shortfall. This guarantee could only be changed by the Virginia General Assembly.
Tax Benefits: Contributions to a Virginia 529 plan of up to $4,000 per account per year were deductible in computing Virginia taxable income, with an unlimited carryforward of excess contributions. Taxpayers aged 70 or older could deduct the full contribution amount in the year of contribution.
Financial Aid Considerations: While Prepaid529 should not affect eligibility for merit-based scholarships, it may have an impact on financial aid offers. 529 accounts with a parent or dependent student listed as the account owner are assessed at a maximum of 5.65 percent of the account’s value when calculating the Expected Family Contribution (EFC).

Important Information for Existing Prepaid529 Account Holders

If you previously purchased semesters through the Prepaid529 program, you will not lose these benefits. You can still log in to your account at Invest529 to use your Prepaid529 benefits. Once you indicate your intent to enroll, a credit will be placed on your account in anticipation of the funds. This process can take 2-3 weeks. Student Financial Services (SFS) will invoice for payment after the add/drop period, and the distribution is typically received 45-60 days after sending the invoice. Once received, SFS will replace the estimated credit with the actual payment.

If your student transfers to a different school or you wish to stop using the Prepaid529 benefit, contact Invest529 directly. SFS does not generally recommend using Prepaid529 for either January Term or Summer Session, as in most cases, you will see a reduced value to your benefit for doing so.

Submit a Stop Benefits request if the student stops attending school. Invest529 will no longer make payments to the school once the request has been submitted and accepted.

Read also: Virginia Peninsula Budget Guide

Understanding How Prepaid529 Benefits Are Applied

Prepaid529 benefits will be paid directly to Virginia Tech each semester after the add/drop period. The plan covers tuition and mandatory fees for a normal full-time course load in a general course of study. Benefits used for less than a full-time course load (including winter or summer semesters) are prorated.

Additional charges for a specific major, class, program or course of study (e.g., engineering, architecture), often referred to as “supplemental program fees,” are not covered by Prepaid529.

If you have sent your distribution request to Invest529, the university will be notified within 10 days of the date the request was received by them. Once the university receives the roster, a pending credit for the amount of tuition and fees is entered on each student account. You will see the pending credit on your bill and also on the Hokie SPA.

Important Considerations for Maximizing Benefits

To ensure maximum financial benefit from your Prepaid529 plan when receiving scholarships or grants designated for tuition only, consideration should be given to the level of benefits being accessed. You may want to contact Invest529 (1-888-567-0540) to review plan options for covering other non-tuition educational costs such as room and board.

Introducing the Tuition Track Portfolio

While the Prepaid529 program is no longer available for new enrollment, Virginia529 offers alternative options, including the Tuition Track Portfolio. Exclusive to Virginia residents, the Tuition Track Portfolio is designed to keep pace with average tuition growth.

How Tuition Track Works

The Tuition Track Portfolio is a "pre-pay" program where funds can be used more flexibly than the old Prepaid529 plan. This plan is designed to protect education savings from volatility and maintain its value. To cover the cost of more expensive schools, consider buying more units.

Other Virginia529 Savings Options

Virginia529 offers different savings options to choose from, including the Invest529 and CollegeAmerica 529 plans designed to invest your savings into portfolios according to your risk tolerance, objectives, and time horizon. These plans offer their own benefits, incentives, and flexibility. The Account Owner can make a withdrawal request any time the need to pay for qualified expenses related to Higher Ed, K-12, Student Loans and Apprenticeships arises.

General Information About 529 Plans

A 529 is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan.

Key Features of 529 Plans

Tax Advantages: Earnings grow free from state and federal taxes when used for qualified expenses.
Qualified Expenses: 529 plans can be used to pay for qualified higher education expenses, as defined in § 529 of the Internal Revenue Code of 1986, as amended, or other applicable federal law.
Contribution Limits: Each college savings trust agreement made pursuant to this chapter shall include the maximum and minimum contribution allowed on behalf of each qualified beneficiary for the payment of qualified higher education expenses, as that term is defined in § 529 of the Internal Revenue Code of 1986, as amended, or other applicable federal law.
Withdrawals: Provisions for withdrawals, refunds, transfers, and any penalties.
Beneficiary: The name, address, and date of birth of the qualified beneficiary on whose behalf the savings trust account is opened.
Substitution: Terms and conditions for a substitution for the qualified beneficiary originally named.
Termination: Terms and conditions for termination of the account, including any refunds, withdrawals, or transfers, and applicable penalties, and the name of the person entitled to terminate the account.
Time Period: The time period during which the qualified beneficiary is required to use benefits from the savings trust account.
State Residency: You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional.
Non-Qualified Distributions: Non-qualifying distribution earnings are taxable and subject to a 10 percent tax penalty.

Eligibility

Citizens and legal residents at least 18 years old, UGMA/UTMA custodians, and legal entities can open 529 plans.

State Tax Benefits

Contributions to a Virginia 529 plan of up to $4,000 per account per year are deductible in computing Virginia taxable income, with an unlimited carryforward of excess contributions. Contributions are fully deductible in the year of contribution for taxpayers at least 70 years of age.

Tax Filing Status

Find out how much you can save on state taxes this year by contributing to a Virginia 529 plan.

State Tax Recapture Provisions

The principal portion of rollovers and nonqualified withdrawals from this plan are included in Virginia taxable income to the extent of prior Virginia tax deductions. Nonqualified withdrawals for this purpose do not include withdrawals made as the result of the beneficiary's death or disability or withdrawals made on account of the beneficiary's receipt of a scholarship.

State Tax Treatment of Qualified Distributions

Qualified distributions from Virginia and non-Virginia 529 plans are exempt. Virginia also exempts distributions from a Virginia 529 plan attributable to the beneficiary's death, disability, or receipt of a scholarship.

State Tax Treatment of Rollovers

Virginia follows federal tax-free treatment except that outbound rollovers are subject to the recapture of prior state tax deductions.

ABLE Savings Trust Agreements

Each ABLE savings trust agreement made pursuant to this chapter shall include the following terms and provisions:

The maximum and minimum annual contribution and maximum account balance allowed on behalf of each qualified beneficiary for the payment of qualified disability expenses, as defined in § 529A of the Internal Revenue Code of 1986, as amended, or other applicable federal law;
Provisions for withdrawals, refunds, transfers, return of excess contributions, and any penalties;
The name, address, and date of birth of the qualified beneficiary on whose behalf the savings trust account is opened;
Terms and conditions for a substitution for the qualified beneficiary originally named;
Terms and conditions for termination of the account, including any transfers to the state upon the death of the qualified beneficiary, refunds, withdrawals, transfers, applicable penalties, and the name of the person entitled to terminate the account;
The time period during which the qualified beneficiary is required to use benefits from the savings trust account;
All other rights and obligations of the contributor and the Plan; and
Any other terms and conditions that the board deems necessary or appropriate, including those necessary to conform the savings trust account with the requirements of § 529A of the Internal Revenue Code of 1986, as amended, or other applicable federal law.

Additional Contractual Features

Contract Prices: Contracts available in semester increments. In the 2018-19 enrollment, prices ranged from $8,970 for a 5th to 9th grader to $9,720 for newborn - age 4/5.
Available Tuition Packages: Prices cover a semester at a Virginia public four-year university/college or 2 2/3 semester at a Virginia two-year/community college.
Out-of-State Institutions: The contract will pay the lesser of 1) payments made on the contract plus interest at a reasonable rate of return based on institutional money market rates, or 2) the average in-state undergraduate tuition at Virginia public institutions for the same academic semester the benefits are used.
Contract Payment Options: Lump sum, initial down payment and installment payments for the balance, or installment payments only. Lump-sum and first monthly payments are typically due by May 1st.

Fees & Expenses

Effective May 1, 2014, VA529 no longer charges an application fee for this program if application is submitted online.

Restrictions

The beneficiary must be in the 9th grade or below at the time the contract is purchased.
Contract benefits must be used within ten years after the projected date of high school graduation, unless an extension is granted.

Other Considerations

Third Party Billing Office

The Third Party Billing Office will invoice the prepaid vendor after the final enrollment census date (Last day to drop with a tuition refund or change to audit (census date)) of the term. (See Academic Calendar) For example, if student A is enrolled in a 1st 8 week class, a 2nd 8 week class and 2 - 16 week classes, the invoice will not be generated until the 2nd 8 week census date. Therefore, the student will continue to see a balance on their account until the invoicing is completed.

Differential Tuition Rates

A common question is prepaid plans and differential tuition rates.

Non-Virginia State Prepaid Plans

Please contact your state pre-paid company to ensure you have completed and submitted any required documentation for the semester you wish to use the pre-paid plan. The state pre-paid will then send a roster to our office with your name, which will indicate to us that we can expect the funds from the prepaid plan. Only then will we place a credit on your account in anticipation of the funds.

After the add/drop period, SFS will invoice the state prepaid agency for payment. The distribution is typically received 45-60 days after sending the invoice.

Other Prepaid Plans

Some common Tuition plan vendors are Virginia 529 Prepaid, Florida Prepaid, Texas Guaranteed Tuition Plan, Alabama PACT, Maryland Prepaid MPCT and College Illinois!

Virginia Law Regarding Prepaid Tuition Contracts and College and ABLE Savings Trust Agreements

§ 23.1-707. Prepaid tuition contracts and college and ABLE savings trust agreements outlines the legal framework for these plans in Virginia. Key provisions include:

Contract Terms: Specifies the required terms and provisions for prepaid tuition contracts, college savings trust agreements, and ABLE savings trust agreements.
Application of Tuition Prepayments: Details how tuition prepayments are applied at various institutions, including public, private, and out-of-state schools.
Unclaimed Moneys: Addresses the handling of unclaimed moneys in contracts or savings trust agreements that have not been terminated or exercised after a specified period.
Exemption from Creditor Process: Protects money in the Plan from creditor process, attachment, garnishment, or other legal or equitable processes.
ABLE Savings Trust Accounts: Specifies that any moneys in an ABLE savings trust account, contributions to the account, and distributions for qualified disability expenses shall be disregarded when determining an individual's eligibility for state assistance or benefits.
Non-Assignability: Prohibits the assignment of prepaid tuition contracts or savings trust accounts for the benefit of creditors or as security for any loan.
Dispute Resolution: Outlines the process for resolving disputes, claims, or actions related to prepaid tuition contracts or savings trust agreements.

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