For example, let's say private Colleges A and B have become members of the Tuition Plan Consortium honoring 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% of College A's tuition for one year; or an entire year at College B, regardless of what tuition costs are at the time the certificates are used.

In addition to protection from tuition inflation, Independent 529 Plan provides a certificate discount that enables students to purchase future tuition at less than current prices. The certificate discount varies by institution but is never less than 0.5% per year.

Pros: The good news is that these plans have no sales, application or maintenance fees. Also, if you are a conservative investor, you do not have to worry about a crashing stock market bringing down your investments. After all, with the cost of private college tuitions up 6% this year alone and not on pace to slow down, where can you get a Return On Investment like that? Although 220 colleges have joined the newly available 529 plan, more are expected to join in the coming years.

Like state-sponsored 529 plans, this innovative school-sponsored 529 plan allows your investments to grow entirely tax-free. Further, if a student does not attend a member college, you may transfer tuition certificates from one child to another, as long as they are related.

Cons: On the other hand, it is rather unpredictable as to whether schools that may be on your target list will ever join the Independent 529 Plan. Although plan assets may be rolled over into 529 savings plans, funds from which can be used at any college throughout the country, funds which you transfer out of the Independent 529 Plan are subject to a 2% annual cap on investment returns or losses. That is not a significant return at all.

Another downer of the Independent 529 Plan is the negative impact on financial aid eligibility. Your account value will most likely be subtracted dollar for dollar from your financial aid awards, which are determined by a federal formula called Expected Family Contribution (too learn more about student financial aid, click here).

The bottom line is that this plan is a nice addition to the college savings mix, although it adds more confusion to a family's decision-making process. Generally, this prepaid tuition program is suitable for upper income families who are conservative investors. Further, if several schools which are members of Independent 529 Plan are on your or your beneficiaries' target list, that is another reason to consider this plan. Click here to learn more about this plan. Feel free to email us to have a 401kid Education Planner answer specific questions about the Indepdendent 529 Plan.