Earnings are guaranteed by the state to match in-state public tuition inflation.
Prepaid tuition program distributions are treated like scholarships -- they reduce financial need on a dollar-for-dollar basis.
Most programs allow accumulated funds to be transferred to private or out-of-state schools, but then require you to pay the difference between the prepaid tuition price and the current price of tuition at the out-of-state school.
Coverdell Education Savings Accounts (ESAs)
Formerly known as Education IRAs, these accounts let families put away $2,000 per beneficiary, per year and use the money -- tax-free -- to pay for college expenses.