You lock in tuition at current in-state university rates, even if your child will not be attending college for several more years. It's an enforced savings plan. Prepaid Tuition Programs are often exempt from state and local taxes. Federal taxes are deferred and are not paid until the student actually uses the money. Family and friends can often purchase Prepaid Tuition Units.
Most states allow either lump sum payments or monthly installments.
In certain states, the prepaid tuition can be used to cover other expenses such as fees, room and board, or books and supplies. The program can be beneficial to families who do not qualify for need based financial aid. You could be saving dollars that might be better invested in other sources. Some experts recommend investing in a diversified portfolio of mutual funds instead. Always weigh your investment strategy carefully.