The Michigan Education Trust or MET allows a family to, in effect, share the risk when investing money for college. The MET guaranteed plan allows a family to pre-pay tuition at a public Michigan university for a semester (or eight) at today’s tuition rates. A MET contract does not, however, cover other costs, such as books or room and board.
A contract can be purchased from MET for any number of semesters up to eight. Each contract can be paid in a lump sum or over time, and there are three contract options:
- Full Benefits
- Limited Benefits, which pays up to 105% of the weighted-average tuition of all 15 of Michigan’s four-year universities
- Community College
The economic turmoil at the end of 2008 and the beginning of 2009 depleted many an investment portfolio for college. When the dust cleared, however, the Michigan Education Trust was deemed sound and able to fulfill its tuition obligations (at least for several years to come). The shared risk that allows MET to weather an economic downturn is perhaps the program’s biggest advantage. It should be noted, however, that the trust is guaranteed by its assets rather than the State of Michigan.
Obviously a family will get the best value from MET if their child does, in fact, attend a public Michigan university. If a family opts for the Full-Benefits plan, the best value will be had if the student attends a higher-than-average-tuition university, such as University of Michigan, Michigan State University, Ferris State University or Michigan Technological University.
If a family opts for the Limited-Benefits plan, their student’s attendance at one of Michigan’s more expensive institutions will not be fully covered. Under the Limited-Benefits plan, an amount will be determined each school year that represents the weighted-average tuition at Michigan’s 15 public universities. This amount will then be used to purchase credit hours at the more expensive university at its present-day tuition rate. For example, in 2007, a Limited-Benefits plan covered the cost of 23 credits at University of Michigan and 28 credits at MSU. Given the fact that the average credits per student, per year is 30, the student with a Limited-Benefits plan will be left with some tuition cost for the year in spite of his or her participation in MET.
MET has several tax benefits. For instance, payments into the plan are deductible from Michigan income tax in the year they are made. There is also a federal gift tax exemption for contributions from grandparents and other extended family. Another big advantage of the plan is that qualified educational disbursements are exempt from both state and federal tax.
Important caveat: If disbursements under the plan are not used for qualified educational expenses, they will be subject to income tax and a 10% federal excise tax. For example, if the potential student chooses to go into the military, is disabled, receives a scholarship or simply decides not to attend college, he or she will receive a refund, but it will be taxed.
MET is a good deal for the student who sticks to the basic expectations of the program. In other words, if the student attends a public Michigan university, all’s good. The value of the plan goes down, however, when a student chooses an institution that is outside the MET box.
In the case of a student who chooses to go to an out-of-state or private university, MET will purchase credits at the chosen university in an amount equal to the average (versus the weighted average) tuition at a public Michigan university. If the student decides not to go to a university as defined under the plan, however, they’ll receive a lump-sum refund equal to the lowest tuition of Michigan's 15 four-year universities.
Other disadvantages of note:
- A plan cannot be cashed out until the student is 18 or graduates from high school.
- The plan is based on 120 credit hours (30 credit hours a year for four years). If a student attends college for more than four years, which most students do, then the plan will not cover his or her complete tuition.
- If a student completes over half the credits toward a Bachelor’s Degree, the remainder of their MET contract cannot be refunded in cash.