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. A Prepaid Tuition Program does NOT guarantee admission into college. Saving for college with a Prepaid Tuition Program could have a negative effect on federal financial aid applications. The Prepaid Tuition Program in most states is keyed to the price of tuition at the state's public, but not private, universities. If your student decides not to attend college, many states will only return the original contribution with a reduction or elimination of compounded interest.