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September 3, 2003

SMU Joins New National Prepaid Tuition Program

DALLAS (SMU) -- SMU is participating in Independent 529 Plan, a new prepaid college tuition plan tailored specifically for private colleges to make higher education more affordable.

SMU has joined with more than 220 other private colleges and universities across the country to offer a tax-advantaged way for families to save for tuition at today's prices.

"This plan is part of our ongoing effort to make higher education more accessible," says SMU President R. Gerald Turner. "Many families have not been able to envision the benefits of private higher education for their children or grandchildren. A prepaid plan with tax advantages can open up that opportunity and make it a reality."

Section 529 Plans, named for the IRS code that defines them, have gained in popularity over the last decade. Families have been attracted to these plans because accounts generate no federal income tax if used as intended, benefits are transferable to other members of the family, and refunds are available if the child receives a scholarship or decides not to attend college.

For purchasers, the effectiveness of Independent 529 Plan is not dependent on the performance of the stock or bond markets. Rather, contributions are actually pre-purchasing tuition, in part or in whole, at less than today's prices.

"Regardless of whether a student attends SMU or another one of the member institutions, Independent 529 Plan represents a way for parents to contribute and pay for private college without worrying about either investment risk or tuition inflation," said SMU Treasurer Liz Williams.

"Independent 529 Plan proceeds can be used at any of the participating colleges. Think of it as buying a shopping certificate for use at any of the stores at a mall," said Doug Brown, president and CEO of Tuition Plan Consortium, the Albuquerque, N.M.-based nonprofit group that oversees the Plan. "Students don't choose their college at purchase, but after they have applied and are accepted in the regular manner."

For example, let's say private Colleges A and B will honor certificates purchased under Independent 529 Plan. College A has a tuition cost of $30,000 for this current year and College B, $10,000. A person who makes a $10,000 contribution into Independent 529 Plan this year would receive tuition certificates that would cover 33.3 percent of a year's tuition at College A or a whole year at College B, regardless of how high tuition may be at the time the student eventually chooses to use the certificates.

The purchase of a tuition certificate does not guarantee admission or enrollment at a participating institution. It may have an adverse effect on the beneficiary's eligibility for financial aid.

In fact, because participating institutions must offer a discount off their current tuition fees, the certificates would cover slightly more tuition at each college in this example. At a minimum, institutions must discount a half percent per year off current tuition rates.

Individuals can open Independent 529 Plan account at no charge. To locate member institutions and learn about refund policies and other plan features, call 1-888-718-7878 or visit

Other features of the Plan include:

  • No fees of any kind to the consumer
  • A parent, relative or friend at any income level can establish an Independent 529 Plan for a beneficiary (eventual student) and may also transfer use of the tuition certificates to a wide range of relatives of the beneficiary.
  • 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.
  • The number of participating colleges and universities may increase over time.
  • Contributions are made on an after-tax basis and any increase in value realized when a tuition certificate is redeemed at a member college will be free of federal and state taxes. However, a sunset provision in the current tax law calls for the tax-free features of all 529 plans to end in 2011. Future changes in the law may create adverse tax consequences, or lead to termination of the plan.

If the tuition certificates is not used by the beneficiary, they can be transferred to a relatives of the beneficiary, or the adjusted value of the certificates can be rolled over into another 529 plan without penalty. Also, a refund of the amount will be given capped at plus or minus 2 percent of the Fund's performance in any year contributions were made. The refund may be used to pay for college expenses at non-member institutions without incurring federal income tax or penalties on any investment gains. If, however, the refund is not used within one year or to pay qualified higher education expenses, the account owner will be subject to taxation on any gains and to a 10 percent additional tax.

Tuition Plan Consortium is a nonprofit organization based in Albuquerque, New Mexico, and was formed in 1996 to make education at independent colleges and universities more affordable and more accessible for families in the United States.

TIAA-CREF Tuition Financing, Inc. will administer the plan and TIAA-CREF Trust Company, FSB, will manage its investments.

Find more information at SMU's Independent 529 Plan microsite at