KAPT Program Overview
KAPT At A Glance
Detailed Questions and Answers about KAPT
- How KAPT Works
- Eligibility and Use of Benefits
- Kentucky Schools Eligible for KAPT's Guarantee
- KESPT and Other Education Savings Plans
- Payments and Pricing
- Tax Issues
KAPT At A Glance
KAPTivating Facts About Kentucky's Affordable Prepaid Tuition
Keeps Options Open
KAPT purchasers can choose from three different plans:
- The Value Plan guarantees tuition at most of Kentucky’s community and technical colleges.
- The Standard Plan guarantees tuition at Kentucky’s 4-year public universities.
- The Premium Plan aims to cover the average price of tuition at Kentucky’s private colleges and universities.
All three KAPT plans can be used at any qualified institution of higher education, public or private, anywhere in the country. Purchasers can also change plans any time a need arises until the beneficiary begins to use benefits.
A refund is issued with no penalties if a student receives a scholarship, dies, or becomes disabled and cannot attend school.
KAPT lets families cap college inflation rates by offering the cost of tomorrow’s tuition at lower prices today.
Parents, grandparents, or other account hold ers can prepay tuition in one lump sum or in manageable monthly payments over many years until the student begins school.
KAPT investment earnings are exempt from state and federal income taxes.1 Excess funds can be used tax-free towards other qualified higher education expenses such as room, board, and books.
Once an account is paid in full and your beneficiary enrolls in college, KAPT guarantees payment of tuition and mandatory fees at any public college or university in Kentucky in accordance with the tuition plan purchased.
Benefits can also be used at private Kentucky colleges and universities as well as colleges and universities nationwide. Benefits can be transferred among siblings, cousins, and other eligible family members with no penalties.
Detailed Questions and Answers about KAPT
KAPT guarantees the price of tomorrow’s tuition at lower prices today. There are three plans.
THE VALUE PLAN–Guarantees the price of in-state tuition and mandatory fees at almost every Kentucky Community and Technical College System (KCTCS) college. Participants prepay the cost of KCTCS tuition through a lump- sum or monthly payment plan. Tomorrow’s KCTCS tuition price for full-time enrollment will be guaranteed up to 16 hours per semester. If the child attends a more expensive school that is not in the Value Plan, the family will have to make up the difference.
THE STANDARD PLAN– Guarantees the price of in-state undergraduate tuition and mandatory fees at Kentucky’s eight public universities. Participants prepay the cost of tuition at Kentucky’s most expensive public university through a lump-sum or monthly payment plan. This plan will guarantee tomorrow’s tuition price for full-time enrollment, up to 16 hours per semester, at the state’s most expensive public university. If a child attends a less expensive school—for instance, a community college or one of the less expensive four-year regional universities—the difference can be applied to qualified higher education expenses such as room, board, and books. If the child attends a more expensive school not in the Standard Plan, the family will have to make up the difference.
THE PREMIUM PLAN–Aims to cover the average price of tuition at Kentucky’s private colleges and universities. Participants prepay the weighted average cost of tuition at Kentucky’s private colleges and universities in the Association of Independent Kentucky Colleges and Universities. While no particular school’s tuition is guaranteed, your investment grows at the same rate as the University of Kentucky’s tuition. This plan should cover tuition at many of the state’s private schools and all of Kentucky’s public colleges and universities. Depending on tuition rates, any money left over can cover qualified educational expenses such as books, room, and board.
Is KAPT guaranteed by the Commonwealth of Kentucky?
The KAPT Trust Fund was backed by 75% of the State Treasurerís Unclaimed Property Fund until the statute was repealed in 2006. As part of the 2006 state budget process a replacement statute (KRS 164A.708) went into effect and guarantees all KAPT contracts in existence on April 25, 2006 with the full faith and credit of the Commonwealth of Kentucky. According to the statute, the General Assembly shall appropriate the necessary funds to meet the liability of the program in the event the KAPT Trust Fund does not have sufficient funds to pay contract obligations.
Please keep in mind that KAPT’s guarantee only becomes effective upon your full payment of all contractual obligations and enrollment by your KAPT beneficiary. Entering into a KAPT contract establishes a legal obligation of the Fund to pay tuition only if you meet those requirements.
Is there an individual account set up for my money?
The program is not an individual savings account. It is a trust fund that combines the contributions of all participants in order to maximize benefits from institutional investment activities. KAPT does maintain separate accounting records for each participant and his or her contributions for the purpose of calculating refunds, reporting to the Internal Revenue Service, and administering payments when a student enters college. Purchasers will receive annual account statements reflecting contributions, distributions, and other financial data relating to their KAPT contract. You can also access your account information online.
How is KAPT different from traditional private investments?
The value of your KAPT account is strictly tied to increases in college tuition and does not depend on the whims of the stock market. Second, KAPT investment earnings are exempt from state and federal taxes, unlike many other types of investments.
Who manages the money I pay into KAPT?
The Fund is governed by the KAPT Board of Directors whose members include state officials and other Kentucky citizens with a range of financial, business, and legal expertise. KAPT investments are professionally managed by an independent investment manager under the oversight of the Board. Funds are managed consistent with prudent investment strategies, which are defined and monitored by a nationally-recognized investment consulting firm.
The Kentucky Higher Education Assistance Authority, the state agency that administers loan, grant, scholarship, work-study, and savings programs for higher education, administers KAPT’s daily operations under the governance of the KAPT Board of Directors.
Did I receive an official document outlining the terms and conditions of my KAPT contract?
Yes. When you opened your account you were intructed to read the current Master Agreement and Disclosure Statement documents before submitting an application. After your application was processed, you received a Welcome Kit containing a Terms and Conditions of Payment and Purchase document. Your Terms and Conditions of Payment and Purchase, the Master Agreement, KAPT regulations, applicable state and federal law, and your application make up your KAPT contract.
May two people jointly purchase a contract?
Although many people may contribute to a single KAPT account, only one purchaser is allowed. That person is the owner of the contract, but the purchaser can also appoint a successor-in-interest on the application form who can receive contract information and assume contract rights upon the death of the purchaser.
Who is eligible to receive benefits from a KAPT account?
There are no age limits on who can benefit from KAPT. Any adult or child who is at least two years from using contract benefits is eligible to be a KAPT beneficiary, as long as he or she is a Kentucky resident at the time the application is signed or intends to attend college in Kentucky.
Once I open a KAPT account, how long before the beneficiary can begin using benefits?
KAPT requires a two-year waiting period before benefits can be used, even if the account is paid in full initially with a lump sum. Payment of benefits cannot begin prior to the second anniversary of the first payment due date of the agreement. Accounts must be paid in full before benefits can be used.
Where can the money be used?
Funds can be used at any institution of higher education public or private, anywhere in the country, that is accredited by the U.S. Department of Education. Because KAPT is designed to support lifelong learning, benefits may also be applied towards graduate schools. Payments for tuition and mandatory fees at graduate schools will not exceed the undergraduate level benefits as described in the KAPT guarantee.
What expenses can be paid with KAPT funds?
Qualified higher education expenses are tuition and fees, books, supplies, and equipment required for enrollment and room and board if the beneficiary is enrolled at least half-time. For more information on the KAPT payment process, see the Using Benefits section.
What "mandatory fees" does KAPT’s guarantee cover?
Mandatory fees are those fees required as a condition of enrollment incurred by all students at an eligible educational institution.
Does the purchase of a KAPT contract guarantee student admission to a college or university or in-state tuition rates?
No. Students must meet the admission requirements of the school they wish to attend. The determination by a particular state institution as to whether a student is eligible for in-state tuition rates is completely independent from the ownership of a KAPT contract.
When my beneficiary attends college, how will KAPT make payments?
In general, KAPT will send funds directly to the higher education institution at the beginning of each semester at the direction of the account purchaser. When the projected college entrance year is reached, KAPT will provide information and forms regarding tuition payments. For more information on the KAPT payout process, see the Using Benefits section.
How will KAPT determine the amount of benefits available?
For information on using KAPT benefits, see the Using Benefits section.
How will KAPT affect a students eligibility for financial aid?
Any investments or savings are likely to affect financial aid eligibility. In addition, there is uncertainty as to how much and what type of financial aid will be available to families in future years. For federal need-based financial aid, KAPT is treated as a parental asset, like other 529 savings plans. Your contract benefits are not included in determining the amount of Kentucky state student aid your beneficiary will receive, and your contract benefits should not affect the beneficiaryís receipt of merit-based financial aid such as academic or athletic scholarships. The best resource for more detailed information is the financial aid office of your local college or university.
The following is a list of Kentucky public colleges, universities, and technical colleges that are eligible for the KAPT guarantees provided under the Value and Standard Plans. Benefits from Kentucky’s Affordable Prepaid Tuition can be used at ANY qualified institution of higher education, public or private, anywhere in the country.
KAPT’s Value Plan includes a guarantee of tuition2 at
the following Kentucky Community and Technical College System (KCTCS)institutions:
Ashland Community and Technical College
Big Sandy Community and Technical
Bluegrass Community and Technical
College Bowling Green Technical College
Central Kentucky Technical College
Elizabethtown Community and Technical College
Gateway Community and Technical College
Hazard Community and Technical College
Henderson Community College
Hopkinsville Community College
Jefferson Community and Technical College
Madisonville Community College
Maysville Community and Technical College
Owensboro Community and Technical College
Somerset Community College
Southeast Kentucky Community and Technical College
West Kentucky Community and Technical College
KAPT’s Standard Plan includes a guarantee of in-state undergraduate
the following schools:
EVERY community and technical college listed in the Value Plan.
Eastern Kentucky University
Kentucky State University
Lexington Community College (two-year public college)
Morehead State University
Murray State University
Northern Kentucky University
University of Kentucky
University of Louisville
Western Kentucky University
REMEMBER: ALL THREE KAPT PLANS CAN BE USED AT ANY QUALIFIED INSTITUTION OF HIGHER EDUCATION, PUBLIC OR PRIVATE, ANYWHERE IN THE COUNTRY.
What if I dont know which school my beneficiary will want to attend?
That’s not a problem. If, for example, you pay for the Standard Plan in anticipation that the student will attend a four-year public university, but the student later decides to attend a Kentucky community college, the difference between the tuition of the four-year university and the tuition at the community college can be used to pay for books and other qualified higher education expenses.
Can more than one account be opened for the same beneficiary?
Yes. For example, if you anticipate your beneficiary may want to attend a community college and a public university, you may want to open a two-year Value Plan and a two-year Standard Plan. Also, other family members and friends can open KAPT accounts for your beneficiary as long as the total years of tuition purchased does not exceed the five-year maximum.
What if a student decides to attend a higher education institution that is not included in the tuition plan purchased?
The value of your tuition plan can be used at any qualified higher education institution in the country and abroad. If the tuition is more expensive than the contract value, the family will have to make up the difference.
What if a student decides to attend an out-of-state school?
The student can still use KAPT benefits. KAPT will pay the value of the tuition purchased under a purchaser’s tuition plan, and if the out-of-state tuition is more expensive than those rates, the family will have to make up the difference through other means. Remember, KAPT benefits can be applied to any qualified institution of higher education, public or private, anywhere in the country.
What happens if I move out of state?
Movement out of state will not affect your KAPT account and will not affect the value of your tuition plan. If a student attends a Kentucky public college or university as an out-of-state student, and the out-of-state tuition charges exceed the value of the plan, the student will be responsible for the difference.
Are transfers among different types of KAPT tuition plans permitted?
Only transfers that reduce (downgrade plan) the total number of years and value of plan are currently allowed until the beneficiary begins using benefits.
Are transfers among different types of schools permitted after a student enrolls?
Yes. Transfers among colleges and universities are permitted, and any unused benefits under the contract can be used at the new college or university.
If I cancel my contract, may I get back into the program at a later date at the same price?
What if I simply can no longer afford to make payments into KAPT?
You can downgrade your tuition plan to a less expensive plan or you can choose to cover a fewer number of tuition years. This would result in either a lower payment amount or—if the payments already made by you are sufficient to cover the price of the downgraded plan—a paid-in-full tuition plan contract.
How many years of tuition can I purchase?
A total of five tuition years among the three KAPT plans may be purchased for one beneficiary by the same purchaser or different purchasers. Only two years of tuition may be purchased under the Value Plan for the same beneficiary.
Once I open a KAPT account, can I purchase additional years of tuition in the future?
Can the purchaser of my account be changed?
Yes. Depending on the reasons for the change request, certain documentation and fees may be required.
Can I change the beneficiary on my account?
Yes, as long as the new beneficiary is an eligible member of the family of the current beneficiary.
How is KAPT different from Kentuckys Section 529 savings program?
The Kentucky Education Savings Plan Trust (KESPT) is Kentucky’s qualified state tuition “savings” program under Section 529 of the Internal Revenue Code and is also administered by the Kentucky Higher Education Assistance Authority. KESPT offers three investment options, and there is no guarantee that account savings will cover higher education expenses. Savings in KESPT can be used for the full-range of college expenses (tuition and fees, room, board, books, and supplies). KAPT, by contrast, guarantees the future payment of tuition in the Value and Standard Plans. Different families have different needs—some like the flexibility of the savings program; others, the discipline and guarantee of KAPT. KESPT and KAPT should be considered complementary because they help families cover the full range of higher education costs. That’s why numerous other states have both a prepaid and a savings option in place. Individuals may choose to participate in either KAPT or KESPT, or both. To request more information about KESPT, call 1-877-KY TRUST (598-7878) or visit www.kysaves.com.
Can I transfer funds to KAPT from KESPT or other Qualified Tuition Programs?
Yes. Funds may be transferred once per year without changing beneficiaries. Funds may be transferred to an account with a different beneficiary if the new beneficiary is an eligible member of the family of the current beneficiary. Call 1-888-919-KAPT and press option 2 to request a KAPT rollover form.
Can I transfer funds from KAPT to KESPT or other Qualified Tuition Programs?
Yes. Funds may be transferred once per year without changing beneficiaries. Funds may be transferred to an account with a different beneficiary if the new beneficiary is an eligible member of the family of the current beneficiary. Partial transfers from KAPT are not allowed. Transfer requests should be made through the program to which you are transferring funds.
Can I transfer funds to KAPT from Coverdell Education Savings Accounts or U.S. Savings Bonds?
Yes. Funds may be transferred from Coverdell Education Savings Accounts (formerly known as “Education IRAs”) and proceeds from certain qualified U.S. Savings Bonds. Call 1-888-919-KAPT and press option 2 to request a KAPT rollover form. Please consult your tax advisor regarding eligible rollovers from these types of assets.
What payment plans are available?
Purchasers can choose to make payments in the following ways:
- By a single lump sum
- By monthly payments over three, five, or seven years
- By a down payment plus monthly payments over three, five, or seven years
- By monthly payments until the beneficiary’s projected year of enrollment.
How are plan prices determined?
Prices are based on tuition and fee rates at the Kentucky institution(s) specific to the guarantee of the tuition plan. In addition, an actuarial analysis is applied that reflects the risk associated with predicting future tuition and mandatory fee inflation, investment returns, and administrative costs.
Why is the total of the monthly payments higher than the lump-sum purchase price?
Monthly payments include an interest component to take into account the fact that the full contract purchase price is not available for immediate investment on your behalf. The fall 2004 enrollment annual investment premium included in the monthly installment prices is 7.25 percent. Purchasers signing up in future years may have installments that reflect a different rate, determined annually with new pricing by the Fund’s actuaries.
Can I make a different down payment amount than the amounts listed and get a different payment amount?
If you make a down payment of $6,000 or more, you may request a payment recalculation. To do so, select a payment schedule of either 3 years monthly, 5 years monthly, or 7 years monthly on the application. Do not select an option with a down payment. You must submit a signed written request for the recalculation along with the full down payment before the recalculation will be done.
Can I request a payment schedule different from those listed?
How do I make payments?
You may make monthly payments by mail with a KAPT coupon book or by automatic deductions from your bank account. After your application has been processed, KAPT will send you payment instructions.
May I make KAPT payments through payroll deduction?
You will need to ask your employer if payroll deduction for KAPT is available where you work. Currently, payroll deduction is available in many government agencies and some large and small private companies. If your employer is not participating, see the Employees and Employers section or have your payroll officer call KAPT for more information. Note that contributions to KAPT are made with after-tax dollars, not pre-tax dollars, regardless of the method of payment.
When are payments due?
All payments—lump sums, down payments, and first monthly payments—will be due on February 1, 2005, for purchasers who enroll during the fall 2004 enrollment period.
How long can I make payments?
You can make payments from now until your beneficiary’s projected college entrance year by choosing the extended monthly payment option. The projected college entrance year you list on your application will determine your length of payment under the extended monthly payment option. Find your beneficiary’s projected entrance year on the pricing sheet under Extended Monthly Payment Option to determine your payment amount under this option. Please note that your account must be paid in full before July 1 of the projected college entrance year. Therefore, the 3-year payment option is only available if your beneficiary has a projected college entrance year of 2008 or higher, the 5-year payment option is only available if the college entrance year is 2010 or higher, and the 7-year payment option is only available if the college entrance year is 2012 or higher.
Can I pay my account off early?
Yes. You can call 1-888-919-KAPT and press option 2 to request a payoff amount at any time.
Can I change my payment plan?
Yes. You may submit a request in writing to change your payment plan at any time. A plan change fee will apply. Keep in mind your account must be paid in full before July 1 of the projected college entrance year.
What administrative fees will I have to pay?
A list of KAPT administrative fees can be found in the Fee Schedule under Enrollment Information.
What if the student decides not to go to college?
For a small fee, KAPT contract benefits may be transferred to a member of the family of the beneficiary. If the new beneficiary is an older family member, benefits may be transferred as long as the plan will be paid in full by the new maturity year. Otherwise, a transfer of benefits to an older qualified family member may require additional payments.
A final option is to cancel all of the contract. See information below regarding cancellations.
What happens if I cancel my KAPT contract?
A purchaser may cancel a contract at any time.
If you cancel before July 1 of the projected college entrance year, you will receive a refund of payments made minus administrative and cancellation fees.
If you cancel on or after July 1 of the projected college entrance year, you will receive the tuition payout value of the account at that time minus administrative and cancellation fees and any benefits already used. Earnings that are refunded will be subject to federal and state income taxes and a 10 percent federal tax penalty.
If you cancel due to the death or permanent disability of the beneficiary, you will not be charged the cancellation fee or the 10 percent federal tax penalty. Earnings that are refunded will be subject to federal income taxes.
What if my beneficiary receives a scholarship?
If your beneficiary receives a scholarship for qualified higher education expenses, you may request a refund of your account up to the amount of the scholarship without being charged the cancellation fee or the 10 percent federal tax penalty. Earnings that are refunded due to scholarship will be subject to federal income taxes. Keep in mind that KAPT funds can be used for all qualified higher education expenses, so if your beneficiary receives a scholarship that covers tuition, your KAPT funds could still be used for other expenses like room, board, books, and supplies or graduate school.
What are KAPTs tax advantages?
KAPT offers significant tax advantages. Earnings on your KAPT account are tax free at both a state and federal level when used for qualified higher education expenses.
Please note that the law allowing federal tax-free withdrawals is set to expire on December 31, 2010. Congress may or may not extend the law beyond this date. If the law is not extended, earnings that are used for qualified higher education expenses after 2010 will be taxable to the beneficiary at the beneficiary’s tax rate.
Is there a tax deduction for KAPT contributions?
Contributions to KAPT are currently not eligible for a federal or Kentucky state tax deduction. Also, contributions to KAPT are made with after-tax dollars, not pre-tax dollars. Please consult your tax advisor for personal tax questions.
Can I deposit UGMA or UTMA funds in a KAPT account?
KAPT allows custodians for minors under the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act (UGMA/UTMA) to open KAPT accounts. The accounts are subject to certain restrictions, which are described in the Master Agreement. Custodians should consult a tax advisor about the consequences of opening and holding KAPT accounts, as well as legal counsel regarding their rights and responsibilities as custodians. Please call 888-919-KAPT and press option 1 for instructions on completing a KAPT application for a UGMA/UTMA account.
What are the gift tax implications for a KAPT account holder?
Contributions to KAPT are considered a completed gift for gift tax purposes. No federal gift tax would be imposed on a purchaser for gifts to a beneficiary which do not exceed the annual gift tax exclusion amount (currently $11,000). If an account holder makes up to $55,000 in contributions in a single year, the contributions can be treated as having been made ratably over five years. As with any personal tax questions, it is important to consult your tax advisor.
1. The law allowing federal tax-free withdrawals is set to expire on December 31, 2010. Congress may or may not extend the law beyond this date. Back to Tax Free Section
2. The Value Plan payout value is based on a maximum of 16 hours per semester at KCTCS. Back to Value Plan Guarantee Section
3. The Standard Plan payout value is based on a maximum of 16 hours per semester at the highest-priced Kentucky public university. Back to Standard Plan Guarantee Section