Get a Boost From a Prepaid Tuition Plan Refund

Reyna Gobel

Prepaid tuition plans generally only cover tuition and fees. The programs, a special type of the tax-advantaged higher education savings accounts known as 529 plans, are designed for parents to prepay their child's future college tuition at today's prices.

However, sometimes families can get a bonus: a partial refund that could be used for textbooks, room and board or other qualified higher education expenses.

Families may be eligible for a partial refund if the tuition credits they had bought are worth more than the price of the university where a student ended up using the credits, units, semesters or years of tuition purchased.

[Learn if prepaid tuition plans are right for you.]

Some states offer a refund for differences in tuition between state schools. In Washington, parents purchase tuition credits that can be applied at any public college or university in the state. Thus, families pay the same advance rate for tuition whether their child attends the lowest priced school or the highest, says Betty Lochner, director of Washington's Guaranteed Education Tuition Program.

But the good news is if they choose a lower priced school, they still get the maximum benefit, she says. Families will get the difference back between the highest priced state school and the school they choose, she says.

If annual undergraduate tuition and fees at the University of Washington is nearly $12,400 and Central Washington University's undergraduate tuition and fees are about $9,000, for example, families could get a refund of about $3,400.

This difference could be used to pay for any qualified higher education expenses without incurring a tax penalty. For instance, the difference could cover a big chunk of the cost of a meal plan.

[Know the do's and don'ts of using a prepaid tuition plan.]

Refunds aren't limited to state plans. The private prepaid tuition plan offers a refund to families based on the original price of tuition for the school they selected.

It's hard to really pick where kids will go to school 10 years ahead of time, but families can invest in the private college plan - which has more than 270 participating colleges - and change schools at the last minute, says Nancy Farmer, president of the Private College 529 Plan.

If the schools have different tuition costs, families might get a refund. For instance, a parent of a child headed into college next year bought a year's worth of tuition certificates when the child was eight, the year the Private College 529 Plan began. The school they picked at the time had a price of $30,000 per year.

But as a high school senior, the student decided to go to a school that had a price tag of $20,000 at the time the parents purchased tuition. The family would be due a refund of $10,000, plus the tuition growth rate - money they could use tax free for other qualified education expenses.

[Find out how to get your money out of a prepaid tuition plan.]

Scholarships can also net a student a refund in some plans. If a family in Texas bought a year of prepaid tuition units, but the student earned a scholarship, they could see a refund.

Texas offers refunds at the hourly rate the program pays to the school, according to the Texas Guaranteed Tuition Plan website.

The hourly rate for state universities' maximum reimbursement in Texas is $273.15 per credit hour. If a student earned a scholarship that paid for a 12-credit semester's worth of tuition, the refund would be almost $3,300.

However, the family could decide to save those hours for a future semester. Since tuition generally rises, using prepaid plans in later years of schooling can be more valuable, Farmer says.

Parents should always check the individual rules of the prepaid tuition plan they chose for refund options, but more importantly, should understand how they can use the plan for a variety of different schools, experts say.

Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.