(Corrects story originally published March 18 to say the Pennsylvania 529 Guaranteed Savings Plan, not the commonwealth, guarantees the fund and the tuition value is based on what specific school the student attends.)NEW YORK ( TheStreet) -- So-called Guaranteed Savings Plans for college seemed too good to be true. In essence, by offering a plan tied to the rate of inflation for educational institutions, state-sponsored Guaranteed Savings Plans gave college savers the opportunity to lock in tuitions at rates on the day they start saving. For many, it was too good to be true. For instance, out in Illinois, where state budget troubles are the stuff of legend, the program had to be shut down for a year to new enrollees. When the investments don't cover the cost of rising tuitions, who makes up the difference? In some cases, it's consumers who will or have had to pay. One of the worst-case scenarios for parents saving for college is the belief they have college expenses tackled, only to find out at the last minute that in fact they don't. I was therefore surprised and pleased to learn during my radio interview with Pennsylvania state treasurer -- and likely gubernatorial candidate -- Rob McCord, that Pennsylvania's Guaranteed Savings Program is now fully funded and guaranteed. This means in the Pennsylvania 529 Plan the principal is protected, and this means the Plan, not each account owner, assumes the risk for covering tuition inflation increases. For college savers, the importance of the guarantee is this: You can earn inflation-indexed returns right up to the end. By contrast, there are many college savings vehicles that are timed to when Junior enrolls for his first semester. This seems to make sense, but keep in mind that every product I know timed to a specific event changes to an increasingly more conservative allocation as the expiration date nears. Logically, this makes sense, as you do not want to lose principal in a market swoon just before your child goes off to college. However, likely it means your returns diminish as enrollment approaches because your savings will be allocated to lower-yielding but much safer fixed-income investments. However, with a guarantee in place, college savers can reap all of the benefits of inflation-indexed returns investing right up to withdrawal date(s), with none of the downside associated with aggressive investing -- namely loss of principal.
Of course, the Pennsylvania guaranteed savings plan offers the bells and whistles of other plans, too: tax-free growth if the proceeds are used for qualified purchases. For Pennsylvania residents, contributions also offer a deduction against the state's income tax, which can offer a compelling boost to overall returns. The state's 529 Web site, the eponymously named pa529.com, reports either the plan or the beneficiary must be a Pennsylvania resident. The PA 529 GSP can be used at nearly all colleges and universities in the nation and even some abroad. The tuition inflation value received would depend on what specific school or type of school your loved one ultimately attends. Although Pennsylvania has a great plan, the bigger idea is that guaranteed, inflation-indexed plans carry real benefits for college savers. It's just in today's world, you need to do a little more due diligence regarding the value of that guarantee today and in the future. This article was written by an independent contributor, separate from TheStreet's regular news coverage.