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ABOUT THE INDEPENDENT 529 PLAN

What is Independent 529 Plan? It is the first 529 plan to be sponsored by colleges rather than by the states. Independent 529 Plan is poised to launch in September of 2003 and will offer guaranteed prepaid tuition at participating independent colleges and universities across the country.

What is a 529 Plan? A 529 plan is a tax-advantaged way to save for college. "529" refers to the section number in the IRS regulations that describes such plans. There are two types of 529 plans: savings and prepaid. Independent 529 Plan is a prepaid plan.

Who is involved? A national consortium of more than 220 independent colleges and universities, Tuition Plan Consortium (TPC), conceived of the plan to help families afford a private college education. A volunteer board of directors oversees the consortium and its full-time staff. These directors are top administrators of independent colleges and universities or related organizations. Investment policy formation has been guided by Cambridge Associates. TIAA-CREF Tuition Financing, Inc. will administer the program. The staff office for TPC is located at 1401 Central Ave. NW, Albuquerque, New Mexico, 87104.

How does Independent 529 Plan work? Participating colleges maintain control over their own tuition and fees. A certificate bought by a family will guarantee a different amount of tuition at each college, depending on the current tuition and certificate discount rate (described below) set by that college for the year the certificate was purchased. An Independent 529 Plan certificate purchased for $10,000 might guarantee a year's worth of tuition at College A or one-half year's tuition at College B. These commitments are guaranteed, even if tuition rates rise sharply before a student enrolls or investment returns have been weak. The certificates are not identified with a specific college until they are redeemed for educational services, and families are told that ownership of a tuition certificate has no bearing on the student's prospects for admission at participating colleges.

What is the "Certificate Discount"? Each participating college offers an additional incentive to purchasers: a discount off the price of tuition at the time of purchase, pro-rated to the amount of tuition the person buys. The discount is a minimum of one-half of one percent per year (many colleges offer more) and compounds, so that the longer a purchaser holds the certificate, the more valuable it is. The certificate discount rate at each individual college is fixed for the life of that certificate.

Can the college change its certificate discount rate? Yes. A college can change its certificate discount rate once per year, effective the following July 1. A change would apply only to certificates issued during the next program year; existing certificates would continue to bear the same certificate discount rate at which they were issued, until redeemed.

How do people sign up? They can sign up on the web at www.independent529plan.org or download an application from the same site and mail it in. They can also phone a toll-free number, 888-718-7878, and request an enrollment kit. Official launch date for sales to the public is Sept 3, 2003.

What is the minimum purchase amount? The amount of certificate purchase may be as low as $500, or $25 per month with an automatic bank or payroll transfer. If $500 is not accumulated within 24 months of the initial contribution, the funds will be returned to the purchaser without interest.

What is the maximum purchase amount? The maximum purchase on behalf of any one designated beneficiary will be limited to the amount that would purchase five years' tuition and mandatory fees at the TPC member college with the highest current tuition and mandatory fees. For 2003/2004, that number will be about $137,500.

What educational expenses are covered? Only undergraduate tuition and mandatory fees, for now. Mandatory fees are those fees required to be paid by all students attending the particular college as a condition of enrollment. We hope eventually to extend Independent 529 Plan to include room and board expenses and graduate school study.

What fees are charged to families for participating in the program? None. There are no fees and no broker commissions.

Who is eligible to purchase or own a certificate? Initially, ownership of Independent 529 Plan certificates will be restricted to adult U.S. residents. Ownership of a certificate will also be permitted for a trust, estate, partnership, association, company or corporation, either for a named beneficiary or for a scholarship for unnamed beneficiaries.

What about Grandparents? Grandparents, aunts, uncles, friends, almost anyone can open an account.
Who is eligible to be named a designated beneficiary? There are no age or other restrictions for individual beneficiaries. At the time a certificate is purchased, the purchaser must provide a U.S. taxpayer identification number for the designated beneficiary.

Can a certificate owner change the designated beneficiary? Yes, but only to a member of the family of the current beneficiary (including first cousins and in-laws). You may change the beneficiary once a year, at most.

Is there a specified enrollment period to purchase a certificate? Unlike many state prepaid tuition programs, Independent 529 Plan has no set enrollment period: a purchaser may purchase one or more certificates at any time.

What is the program year? An Independent 529 Plan program year runs from July 1st of any year through the following June 30th.

How long must a certificate be held before it may be redeemed for educational services? A certificate (representing all purchases for a single beneficiary during a given program year) must be held a minimum of 36 months from the first purchase within that program year before it can be redeemed for educational services. A certificate is eligible for refund or roll-over to another 529 plan after 12 months.

How does a purchaser determine the value of a certificate at a specific college? Prospective purchasers can consult tools at www.independent529plan.org that will calculate the tuition benefit that a specific purchase represents at different member colleges, based on each college's current tuition and certificate discount rate. The Web site will also provide a tool that calculates the cost of one year's tuition for any college at a given date of use. Telephone consultants available to callers via the Independent 529 Plan's toll-free phone number (888-718-7878) will be able to access the same tools to assist prospective purchasers and certificate owners.

What are the advantages of participating to a family? Families receive guaranteed protection against future tuition increases, freedom from market risk, federal income tax exemption on any increase in value of the certificates when they are used for tuition (or other qualified expenses), and portability of their certificates to a wide array of member colleges nationwide, at a cost below today's tuition.

Why would colleges want to do this? Many colleges are looking for ways to be more accessible to families who find themselves being priced out of the private college market. Over time, the program will create a pool of families who have saved for college. In addition, TPC colleges take a national leadership position in maintaining access and affordability to private higher education, providing a service for alumni, and promoting a culture of saving for education among Americans.

What is the financial aid treatment of an Independent 529 Plan certificate? Current federal aid standards regard 529 prepaid tuition proceeds as immediately expendable student resources, but 529 savings plan proceeds as parent assets. However, many higher education groups are advocating for parity in the upcoming Higher Education Reauthorization Act. We recognize that each college will set its own standards and that those standards are subject to change.

Are penalties assessed if certificate values are diverted to other uses? Withdrawals that are used for enrollment at non-member colleges, including public institutions, are not subject to federal income tax. As with any 529 program, if the funds are not used for qualified higher education expenses, any increase in the value over the purchase amount is subject to federal income tax as well as a 10% Additional Tax.

Who will manage the program for TPC? TIAA-CREF Tuition Financing, Inc. (TFI) serves as program manager of Independent 529 Plan. TFI manages Section 529 tuition savings programs for more than a dozen states, and the TIAA-CREF group of companies is the nation's largest pension fund manager and is an organization dedicated to the field of education.

What is a "founding institution" of TPC and what is a "member"? A "founding institution" is one that had paid its one-time capital contribution or had embarked on a payment schedule to do so before launch of the program. These contributions have supported the work of the consortium and the development of the program. A member institution is one that has signed the legal documents required for participation.

What are "favorite colleges" in the context of Independent 529 Plan? At the time the certificate is purchased, the purchaser designates up to 5 member colleges as "favorites" to be used on statements to illustrate the value of all certificates held for that owner-and-beneficiary combination. Designated favorites may be changed as often as desired by the family. Owners are instructed that designation of a college as a "favorite" has no bearing on a student's prospects for admission.

The listing of favorites is necessary in order to be able to report to the owner the current value of his or her certificate (1.2 years at Alpha College; .9 years at Beta University; etc.). It is also useful as a market analysis tool. If a college is rarely listed as a "favorite," TPC staff can work with the institution's alumni and public affairs offices to improve the level of marketing to its constituents.

If new colleges become members after the launch of the program, will certificate holders be able to use their certificates at those schools? Yes, and we expect the number of participating colleges to grow substantially.

What happens if a participating college decides later that it wishes to withdraw from TPC? If an institution withdraws, it would continue to be obligated to honor all Independent 529 Plan certificates that were purchased prior to the effective date of its withdrawal but would be relieved of honoring all certificates purchased after that date.

What is the Gift and Estate Tax treatment of Independent 529 Plan contributions? As with all 529 plans, our program enjoys unusually beneficial gift and estate tax treatment. A contribution is regarded as a completed gift to the beneficiary even though the owner retains most elements of control. Usual gift tax rules apply, such as the $11,000 annual gift exclusion ($22,000 for married couples) and the five-year forward averaging provision, enabling a gift tax-free amount of $55,000 (or $110,000 for married couples). Beyond the amount of annual exemption, there is also tax relief from application of each individual's $1 million lifetime gift exclusion.

What is the effect of state income tax on Independent 529 Plan? None in 44 states that either have no income tax or which parallel Federal tax treatment. In the few states where distributions would be taxable, tax amounts would most likely be small, especially in comparison to the amount saved due to the certificate discount.