States’ Pre-Paid Tuition Plans At Risk

Prepaid college tuition plans nationwide are under pressure due to rising tuition expenses and investments that have gone sour.

Alabama, for example, has seen its fund shrink to half of what it once was. In Florida, lawmakers saw the state’s prepaid tuition fund as a pot of money it could “borrow” from. Florida Gov. Charlie Crist opposed the raid this week, though, saying he didn’t think it was a smart idea.

Eighteen states have pre-paid programs, in which families can lock in kids’ college tuition at today’s rates and prepay the costs.

The Associated Press said:

Among the other states with fewer assets than anticipated liabilities are Tennessee, South Carolina, West Virginia and Washington. Seven of the 18 — Florida, Maryland, Massachusetts, Mississippi, Texas, Virginia and Washington — back their plans if money runs short, according to college savings organizations and state officials.

The story added:

West Virginia’s plan stopped letting people enroll their children more than four years ago. Its investments have lost $23 million since July 1, or nearly 27 percent of their value, said Greg Stone, spokesman for the state treasurer’s office.

“We do have quite some time to make this up. We can only anticipate that things will get better. They can’t get much worse,” Stone said.

Programs have also stopped allowing new families in South Carolina, Ohio, Kentucky and Colorado. Texas stopped taking new students in its first prepaid college plan in 2003 due to a sudden rise in tuition, but later started a new one.

The cost of these kinds of programs has risen recently. In Virginia, for example, the cost of a four-year contract rose more than 10 percent this year. The state’s plan is projected to show a $51 million shortfall.

A couple of months ago, MarketWatch reported:

Directors of prepaid plans, which are offered by more than a dozen states, say they’re seeing renewed interest as families anticipate sharp tuition increases. Washington state, which offers only a prepaid plan, has seen a 50 percent increase in rollovers from state residents who had 529 savings accounts based in other states. Pennsylvania has seen a 43 percent increase in new account enrollment and a 19 percent jump in contributions from May through September over year-earlier levels in its prepaid plan. Other states, such as Virginia and Maryland, are seeing a pickup in calls from consumers interested in enrolling in their prepaid plans or rolling over their investments from their 529 savings plans.

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