The 2018 Michigan Education Trust (MET) Costs Are Out, and the Numbers are Ugly

Michigan recently released the 2018 costs of purchasing the Michigan Education Trust (MET).  The MET is a prepaid tuition plan in which you pay for future college credits today.  In theory, you are paying for future college credits at today’s lower prices.  As I discussed in this article,  really you are paying for future college credits, at a high premium to today’s college costs.  If you purchase a Full Benefits Contract in a lump sum, the current cost for a year is $17,644.  This cost will go up only 1% in May 2018, to $17,820.  It is nice to see that the cost of the MET contract is going up such a small amount, but this still doesn’t make it a good investment.  

So, what makes the MET contract such a poor investment?  The average college tuition cost in Michigan is currently $12,865.  This means that the MET contract costs nearly 40% more than the current costs for a Michigan college.  In order for the MET to be even a decent investment, the cost of college needs to go up at least this 40% before your child goes to school.  If college costs increase at a slower pace, you will actually end up losing money on your investment.  This post describes the different rate of return you would receive given the age of your child when you purchase the MET contract, and the rate that college costs increase.  

There are really two variables that determine the investment return on your MET contract; age of child when purchasing MET contracts, and the rate in which college costs increase between now and when your child goes to school.  The younger the child is when purchasing the MET contract, the better the investment.  Obviously, you would not pay $17,644 for a MET contract today if your child is going to school next year and tuition costs less than $13,000.  The charts below show what the investment return would be given different college inflation rates and age of child when purchasing the MET.  We are assuming in each case that the cost of college now is the current average cost of a year at a Michigan university, $12,865.  

College Costs Increase by 2% (the same as the average increase last year)

Current Age of Child College Cost Increase Cost of College at 18 MET Costs Annual Investment Return
0 2% $18,374 $17,644 0.23%
5 2% $16,642 $17,644 -0.45%
10 2% $15,073 $17,644 -1.95%
15 2% $13,652 $17,644 -8.19%

College Costs Increase by 5% (this has been closer to the long-term average)

Current Age of Child College Cost Increase Cost of College at 18 MET Costs Annual Investment Return
0 5% $30,961 $17,644 3.17%
5 5% $24,259 $17,644 2.48%
10 5% $19,007 $17,644 0.93%
15 5% $14,893 $17,644 -5.49%

College Costs Increase by 8% (even higher than the long-term average)

Current Age of Child College Cost Increase Cost of College at 18 MET Costs Annual Investment Return
0 8% $51,409 $17,644 6.12%
5 8% $34,988 $17,644 5.41%
10 8% $23,812 $17,644 3.82%
15 8% $16,206 $17,644 -2.79%

A few notes on these numbers:

  • If you are purchasing the MET contract, you are really hoping for high college inflation costs.  If college inflation stays low, like last year, even purchasing the MET contract when your child is just born results in basically no investment return.  
  • There is no reason that you would purchase any MET contracts after your child is the age of 15.  In each scenario purchasing MET at the age of 15, results in a negative investment return.  
  • Even if your child is 10 years old, purchasing MET contracts makes very little sense. Even at a high college inflation rate, purchasing the MET contract at age 10, results in less than a 4% rate of return until your child hits age 18.  
  • As we expected, purchasing the MET contract only makes sense if your child is very young, or just born.  No, a MET contract probably won’t generate a high rate of return, but you can help your chances by purchasing the MET contract when your child is very young.  

I’m strongly in the MESP over MET camp, as discussed in this article.   We haven’t even spoke about the penalties that you will face in the MET contract if your child doesn’t go to school.  Still, if you are a conservative investor and have the funds to purchase college credits as soon as your child is born, it can still be a good investment.  I would rather try to invest a little less and earn a higher rate of return by investing the funds for the next 18 years.  Not to mention, we aren’t even talking about room and board, just simply tuition.  You will still need some extra money to help round out college costs for your child if you want to pay for all of your child’s college costs.  Still, if you have a significant amount of funds and just don’t want to think about college costs again, the MET contract may be a good investment idea for yourself.  

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