Parents Writing One Really Big Check

June 11, 2007 — -- Call it scholarly sticker shock.

A college education at the nation's top private institutions costs upward of $150,000, and even families with deep pockets are looking for ways to cut costs.

With college tuition rates shooting up 6 percent, 7 percent and even 8 percent each year, families that can afford it are opting for an alterative that offers substantial savings: paying all four years of tuition upfront to avoid rate hikes.

Tuition, room, board and other fees at most of the country's colleges have been rising faster than inflation for several years.

The average tuition at a four-year private college last year was $22,218, according to the College Board. For public schools, it was $5,836. Both were up 6 percent from the previous year.

While the families might lose out on a few years of earnings, they actually gain in the long term because by senior year they are still paying freshman year rates. The schools are able to use the cash years in advance, saving them money.

These programs are not for everybody, and most schools don't offer them.

"It takes a lot of money," said Frank Claus, the associate vice president for finance at the University of Pennsylvania. The college has had such a plan since 1984.

Last year 100 families out of an incoming class of 2,400 students took part in the program, he said.

Opting for such a program can also mean some tax savings for certain families.

Some parents choose to take out a home equity loan and use that money to pay their child's tuition upfront. Interest payments from such loans are typically tax deductible.

Claus also said that grandparents paid college tuition as a way to get money out of their estates.

Washington University in St. Louis, where tuition is $34,500 a year, allows families to prepay all four years of tuition, room and board.

But the school also offers a no-fee financing program by working with various lenders to offer home equity loans to allow parents to prepay and lock in rates.

This past year, out of a total of 5,738 undergraduate students, 81 families paid upfront for all four years, according to Bill Witbrodt, director of student financial services. An additional 306 partially paid upfront and financed the rest or financed the entire tuition prepayment.