Overview of the Policy
Thisis a policy focused on endorsing the best strategy for payingtuition. In pursuit of higher education, countless Americans havecomprehensive ideas of what they are yearning to study, and where tostudy but not where to get the money. As such, individuals oftenchoose the wrong strategy to pay for tuition. These strategies aredeemed “wrong” in the sense that they do not suit the financialneeds of many of their subscribers. Therefore, this policy provides arecommendation of the best strategy for paying tuition. To arrive atthe best strategy, this policy seeks to answer the followingquestions: What strategic options are available? What are the prosand cons of these options? Which is the best among these options, andwhy? To select the best strategy, this policy will shed light on fourcommonly employed approaches to paying tuition.
Importance of Policy
Thistuition policy is important because it attempts to solve a problemthat most, if not all, Americans face when they plan on joining aneducational institution. By way of recommending the best strategy forpaying tuition, this policy will help Americans in making prudentdecisions when picking a strategy for footing their educationalbills. Hence, this policy’s items of discussion are of importance.
Definition of Key Terms
Tuition is a term used to refer to the fees or money charged by an institution, university, or college for tutoring.
Strategy can be defined as a clearly defined plan of how to achieve particular objectives over a stated period of time.
Inthe education realm, the word stakeholderis used to refer to any party that has endowed the wellbeing andprosperity of a learning institution and its students. In thiscontext, the stakeholders are
The government (as chief regulator).
Administrators (school board members).
Local business leaders.
Available Strategies for Paying Tuition
529 Savings Plan
A529 savings plan is a strategy operated by an educational institutionor the state, intended to help families reserve funds for payingtuition in the future. The plan borrowed its name from section 529 ofthe Internal Revenue Code (IRC) which in 1996, created a platform for529 savings plans (Ley and Jussi, 9). Through a 529 savings plan,families save funds tax free as long as the withdrawals are usedstrictly for qualified college expenses. More than 45 states aresponsoring this strategy because the funds are easy to access.Additionally, this strategy provides a tax benefit since a family’sor individual’s educational savings are shielded from federal tax.Individuals are also permitted to invest in other states’ 529plans. Furthermore, this plan does not have an income limit on top ofhaving a high limit on contributions. The only demerit with thisstrategy is that individuals are exposed to hefty penalties if thewithdrawn funds are used to foot other bills apart from collegeexpenses (De Witt).
Prepaid Tuition Plans
Usingthese plans, individuals can secure tuition at public institutionsyears in advance. These plans enable families to save funds withpreferred state institutions way before the individuals the savingswere made for join the institutions. They offer the same tax shieldbenefits as the 529 tuition plans and the same penalties for notusing the savings on qualified college expenses. Additionally, thesefunds are transferrable to institutions in other states should astudent decide to attend college in a different state other than theone in which the savings accrued (Ley and Jussi, 2). Currently, only22 states offer prepaid tuition plans, which are normally restrictedto state residents and new student enrollments. Therefore, theseplans are not stakeholder friendly owing to their red-tapelimitations.
Inboth private and public learning institutions, graduate programsnormally award scholarships on the basis of merit. Students, based ontheir academic performance, are selected from an application pool ofqualified students (4). The selected students who meet the primaryrequirements are then chosen as the beneficiaries of thatscholarship. Scholarships as a strategy for paying tuition have manydemerits than merits. It is not programmed that every applicant,although qualified, will be a beneficiary. Additionally, funds arenever sufficient since the applicants have to apply as early aspossible to access the full pot of benefits.
Aloan is money borrowed and must be paid back with interest within aspecified time. Students secure educational loans from the governmentor private institutions like banks and other financial institutions.These institutions provide the students with the necessary funding topay for tuition fees, on condition that they repay within a specifiedperiod of time. The most common loan that students use to pay forcollege is the Stafford loan. If a student qualifies for thesubsidized loan, the government pays for the interest as the studentis in college. Apart from the Stafford loan, the government, workingwith learning institutions, provides the Perkins loans, Parent PLUSloans, and Private Student loans, among many others (De Witt). Theseloans are advantageous because they are readily available and they donot have many limitations. The greatest demerit is that these loansleave the beneficiaries heavily indebted, which negatively affectstheir future financial cash flows. Additionally, not all monies givenare recouped by the state or banks that award them which translateto a huge financial deficit in the economy because of defaulters. Asa result, educational loans are increasingly becoming harder tosecure (Ley and Jussi, 7).
Thebest strategy for paying tuition is the 529 savings approach. It doesnot inevitably mean that all the other strategies are not valid theyare realistic. A 529 savings approach is the preferred mode of payingfor college because of the benefits it tags along. First andforemost, it does not have limitations in the sense of income orcontributions. Families and individuals from all income brackets cansave any amount they deem required. Furthermore, the presence of 529savings plans in more than 50 states and 5,000 colleges is proof thatthis strategy is received well by Americans because it caters to theneeds of a majority of Americans irrespective of the economic class.The beneficiaries are not indebted, the monies are easily accessible,no red-tape limitations, and the funds are easily transferrable toother institutions. Even though there are heavy penalties in the caseof defaulters, the 529 savings plan stands out as the finest strategybecause it delivers more advantages than disadvantages (utility).
Thebest strategy for paying tuition is the 529 savings tactic because itoffers the greatest utility to all the stakeholders in the same way.
Ihereby enlist my recommendation to all the educational stakeholdersto crusade for the synchronization and integration of 529 savingsplans across all the educational institutions in America. The 529savings plans are the best because they offer the greatest utility toall the stakeholders in the education sector.
Implications of the Course of Action
Themajor implication of this action is that an entire educational systemoverhaul will be required. This is because the existing strategiesfor paying for tuition will be reviewed, after which the best (529savings plan) will be executed to phase out the old systems thatprovided insufficient utility to all the stakeholders of theeducational sector.
DeWitt, Hans. Internationalizationof higher education in the United States of America and Europe.IAP, 2009.
Ley,Katharina, and Jussi Keppo. "The Credits That Count: How CreditGrowth and Financial Aid Affect College Tuition and Fees." SSRNElectronic Journal SSRN Journal(2012): 1-9. Web. 4 July 2016.