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Texas Tuition Promise Fund: Everything You Need to Know

Have you heard the saying “Everything’s bigger in Texas”? If so, you know they are talking about Texas’s big opportunities for residents to fund their college education! If you are a Texas resident, the Texas Tuition Promise Fund is a great opportunity to start investing in a family member’s future education. Read more to find out about this step towards funding an education! 

What is the Texas Tuition Promise Fund?

The Texas Tuition Promise Fund is an account in which families can prepay for their child’s education by covering a portion or the entirety of tuition fees through purchasing tuition units. These tuition units are available to purchase at a fixed rate, despite what the tuition costs may be for the student when they attend college. Essentially, the Texas Tuition Promise Fund is a prepaid tuition plan. The plan allows individuals to lock in the cost of tuition at today’s prices . This allows them to avoid potential tuition increases in the future. 

Where can tuition units be used? 

These purchased tuition units can be used at most Texas two-year and four-year public colleges and universities. However, tuition units cannot be used at medical and dental institutions, private or out-of-state colleges or universities, career schools, or registered apprenticeship programs. However, if your child decides to attend one of these exclusion institutions, you can apply the transfer value of your units towards the cost of tuition and schoolwide required fees. It is important to note that the transfer value is typically less than the value it would be if used at a Texas public institution. 

How many tuition units are necessary for four-years of schooling?

The exact number of units necessary to cover tuition depends greatly on the institution itself. However, 100 units typically  represents 30 semester hours, which is one academic year.

Also see: What are credit hours? 

Who can open an account? 

Any U.S. citizen or legal resident over the age of 18 years old can open an account as long as the beneficiary of the account is a Texas resident. The beneficiary must be designated by the purchaser in the Prepaid Tuition Contract, making them the recipient of the tuition and fees.

The purchaser of the account is the owner and thereby has control over how and when the tuition units are used. You are able to change the beneficiary to another qualified beneficiary and may cancel the account and request a refund if necessary. 

Once an account is open, family and friends may contribute to the beneficiary’s account. This makes it an easy process for family and friends to contribute tuition units. This is especially handy on special occasions such as birthdays and holidays. 

When can someone open an account? 

The enrollment for the plan is anytime between September 1st and February 28th (February 29th in leap years). However, newborns are eligible for enrollment through July 31st each year. 

Tuition rates are subject to change at the start of each enrollment period on September 1st. Additionally, there is a three year holding period before any units are redeemable.

Why is the Texas Tuition Promise Fund better than just saving money for college in a different fund?  

The Plan offers a great opportunity to protect against rising tuition costs at Texas two-year and four-year public institutions. In fact, tuition rose 87% at Texas public schools from 2003-2020, so you can avoid any future tuition spikes by locking in tuition at today’s prices. The Plan also offers federal tax benefits and flexible payment options. 

Federal tax advantages

  • Any earnings on prepaid tuition contracts are federal tax free
  • Parents, grandparents or even friends may make contributions up to $18,000 ($36,000 for married couples) per child each year without incurring federal gift tax

If the beneficiary does not end up attending a Texas public school, they have the flexibility to use the transfer value toward tuition at another institution of higher education. 

When can I redeem my tuition units?

You will need to meet the following criteria in order to redeem tuition units: 

  • Tuition units to be redeemed must be paid in full
  • Tuition units must have met the 3-year holding period
  • The account cannot have unpaid fees 
  • Account must have a valid Social Security number
  • The account cannot have reached the 10-year termination limit 

Frequently asked questions about the Texas Tuition Promise Fund

What is the three year holding period?

The three year holding period means the amount of time that must pass before a beneficiary may redeem a tuition unit.

If I move out of Texas, how can I use my plan?

Account beneficiaries will still be eligible to use their tuition units if they or the purchaser moves to a different state. Residency is established at the time of purchase of tuition units. Residency carries through to redemption no matter where the beneficiary or purchaser resides at the time of redemption. Semester hours not covered by the Plan will most likely be charged at the out-of-state resident rate.

Can I use the Plan at graduate school?

No. Tuition units are redeemable for undergraduate tuition and schoolwide required fees only. However, you can roll over funds to a 529 college savings plan so they may be used for graduate school.

What if the beneficiary receives a scholarship?

The purchaser can do one of the following: 
  • Keep the unused tuition units for later use
  • Change the beneficiary to a member of the family who meets the residency requirement
  • Transfer the transfer value of unused tuition units to a 529 savings account
  • Request a refund of the refund value

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