his or her income—including investment income—is taxed at his or her own rate."
"What about prepaid tuition plans, Roy?" I asked. "Some of my fellow teachers bought them for their children."
"Another interesting possibility," Roy began his reply. "The first important point to note is this: Although prepaid tuition plans definitely have some merit, they are not the 'almost painless' college-financing arrangement that some people think they are.
"Generally speaking, the plans work like this: Years before a child's scheduled enrollment, parents pay a fixed sum determined by a number of variables, including the child's age, current tuition rates, and the state's estimates both of how much those rates will rise in the future and of the amount it expects to earn by investing the parents' funds. In return, the child is guaranteed four years at any public college in that state—regardless of how much costs rise."
"What if the state bases the prepayment amount on projections that costs will rise at only six percent a year and instead they rise at twice that pace?" I asked.
"That's their problem!" Tom answered unsympathet-ically.
"That's right, Tom, and because of that possibility you can expect the states that offer these plans to use relatively conservative projections—they're not in this to lose money. Their hope is to earn enough by investing the prepayment to offset future tuition increases," Roy explained.
"So, the major benefit of investing in a prepaid tuition plan is that, if tuition costs soar, we'll be protected," I summarized.
"Exactly," Roy confirmed, "exactly. There are some