MET Prepaid Tuition Purchase Options
The first thing people want to know from Robin Lott is exactly what the Michigan Education Trust (MET) is.
Once they understand that MET is a 529 prepaid tuition plan that allows families to lock in future college tuition at today’s prices, their next question usually involves the best way to buy a MET contract.
Lott’s answer: It depends.
“We offer various purchase options, and the one that’s best for you largely depends on your particular financial circumstances,” said the executive director of the Michigan Department of Treasury’s prepaid tuition plan.
“But the bottom line is this: If you’re committed to saving for a child’s future college education, we can work with you to find a purchase option that best meets your needs,” Lott said.
Broadly speaking, MET provides three ways to buy prepaid tuition contracts: in a lump sum, through monthly purchase plans or under the recently introduced Pay-As-You-Go method.
Here are synopses and considerations for each option.
One thing is certain: Buying a MET contract in a lump sum is the most cost-effective method, Lott said.
That’s because the greater your lump-sum purchase, the less you have to worry about future annual MET price increases if you plan to buy more prepaid tuition. Also – unlike those who purchase contracts with monthly payments – lump-sum buyers face no interest costs on their MET purchases.
“It definitely makes the most financial sense – assuming you’re able to come up with that big chunk of change right off the bat,” Lott said.
The size of the chunk needed depends on how much tuition you want to buy. The minimum purchase is a semester’s worth.
At current MET rates, a single semester of future community college tuition costs $1,628, while a semester’s worth of tuition at a four-year institution is $7,037 for a limited-benefits contract and $8,735 for a full-benefits contract. (A limited-benefits contract covers up to 105 percent of the weighted average tuition of Michigan’s public four-year universities, meaning it might not pay the entire bill at institutions with the highest tuition. A full-benefits contract guarantees full payment of tuition and mandated fees at any Michigan public university.)
To determine the MET tab for multiple semesters of tuition, simply multiply the per-semester contract price by the number of semesters you want to purchase.
In other words, the current cost to purchase a contract that covers two years of community college tuition is $6,512. Four years (about 120 credit hours) at a university cost $56,296 with a limited-benefits contract and $69,880 with a full-benefits purchase.
In recent years, lump-sum contracts covering four years or more of tuition have accounted for about 10 percent of MET purchases.
The bottom line: Lump-sum contracts are ideal for families with the means to make an immediate cash outlay, Lott said.
Monthly purchase plans
No big stash of cash? No problem. You can also sign up for monthly payments toward a contract purchase.
This method is suited for purchasers who can’t, or don’t want to, put a big chunk of money down but have the cash flow to make monthly payments, Lott said.
Naturally, the amount of your monthly payments depends on how many semesters of prepaid tuition you’re buying and the length of your purchase plan.
As with the lump-sum option, a minimum purchase of one semester is required, and you can pay off your balance in four, seven, 10 or 15 years. (One consideration in choosing the payment plan’s length is that purchasers are required to pay off the contract before the student is expected to enter college.)
Say you want to buy a limited-benefits contract for one semester of prepaid tuition and choose to make the purchase over seven years. Your monthly payments will total $107.
During that time, your payment won’t go up based on any general MET price increases, but you will effectively pay 7 percent in monthly interest for the convenience of making scheduled payments versus buying a contract in one lump sum.
So, based on the example of buying one semester’s worth of tuition under a limited-benefits contract, you’ll pay a total of $8,988 over seven years, compared with the $7,037 out-of-pocket cost for a similar lump-sum purchase.
Parents have likened buying a prepaid tuition contract through a monthly purchase plan to making car payments, Lott said. There’s also the opportunity for early payoff that may reduce the 7 percent in monthly interest.
But unlike a car purchase, where the vehicle is repossessed if the purchaser defaults, MET contract buyers won’t lose their entire investment if they fall behind on payments. The contract beneficiary will still receive whatever total amount was paid.
Pay-As-You-Go, introduced in December 2015, is MET’s most flexible purchase option.
This method is designed to appeal to families who prefer the ability to make payments at their own pace, Lott said. Unlike monthly payment plans, Pay-As-You-Go requires no regular contributions.
Also, the initial cost requirements are lower than those of the other purchase options.
Pay-As-You-Go allows purchasers to open MET contracts by buying a minimum of one credit hour rather than in semester increments, which might prove too much of a hurdle for some families.
For example, under Pay-As-You-Go, the current initial cost of one community college credit hour is $109. A limited-benefits contract can be established for $470, and a full-benefits contract costs $583. (On May 1, those costs will rise to $110, $474 and $589, respectively.)
Contract holders can add as little as $25 to their Pay-As-You-Go contracts at any time. One thing to understand: Future contributions will buy prepaid credit hours (or fractions thereof) based on MET’s pricing at that time.
Another key benefit of Pay-As-You-Go: Family and friends can conveniently contribute to a MET contract online. All they need to know is the contract number.
“We always encourage parents and caregivers to ask grandparents and other gift givers to contribute toward a college savings account because a college education will have a far more lasting impact than the latest toy,” Lott said.
Still unclear on which payment method is best for you?
“Get in touch with us, and we’ll help you work out a plan that best meets your unique circumstances,” Lott said. “We at MET pride ourselves on customer service.”
More information about MET is available at www.SETwithMET.com or 800-MET-4-KID.
This story is provided and presented by our sponsor Michigan Education Trust