DEFINITION of 'Baccalaureate Bond'

A zero-coupon bond issued by certain states to assist families in saving for college tuition by means of added tax benefits. Baccalaureate bonds are offered by many states and are tax-free securities that allow states to lend at reasonable rates, while issuing tax-free bullet bonds to citizens wishing to save over time for post secondary expenses, namely tuition.

BREAKING DOWN 'Baccalaureate Bond'

These bonds are typically issued in small denominations and are offered in several maturities, making them more convenient for investing and paying yearly college tuition fees. In some states, additional benefits such as tuition discounts may be included if the student enrolls in a state college using these bonds for payment. When combined with other tax-advantaged college savings tools, baccalaureate bonds are an efficient way of saving toward post-secondary education.

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