Sinking stocks and rising tuition puts prepaid college plans in the red

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October 6, 2009

1:18 AM

Just as the current economic climate makes paying for college even more difficult, prepaid college plans may have become a thing of the past. Eighteen states, including Virginia, have attempted prepaid college plans, which allow families to pay into a state fund that guarantees their child’s tuition at a state college or university will be paid for. This tuition is locked in and therefore remains unaffected by any future increase in state tuition. Unfortunately, increases in tuition and the declining stock market have put 16 of these programs in the red.

Virginia alone faces a $260 million dollar deficit in funds by 2018. States have gone through most available options to keep the funds afloat, such as raising fees for the funds, pumping state money into the funds, and, most commonly, closing the funds to new investments. As the Student Aid and Fiscal Responsibility Act — which would create government subsidies for private student loans — patiently awaits a vote in the Senate, the failure of these funds illustrates the dos and don’ts of programs aimed at supplementing college tuition.

Don’t trust the stock market, especially if you are trying to pay for tuition, and even more especially if your state is not willing to control the tuition of its state institutions. For example, when Ohio removed all restrictions on tuition at state universities in 2003, it became necessary to close their prepaid college savings plan to new investors within a year as tuition rose by a double-digit percentage. While the falling stock market has become a bit of a punch line during the recent economic downturn, the real culprit seems to be rising tuition. If states want to make it easier for families to pay for college, the first step is lowering the price of college itself, or at least preventing it from rising.

Though many states are hesitant to do so, Texas has recently opened a prepaid college savings plan in which the public university system has agreed to pay the difference between tuition increases and what is available in the newly formed fund, transferring the responsibility of the plan to the university system.
Ideally, this plan will discourage universities from raising tuition and give more young adults access to higher education.

The problem with this program is that universities in Texas will be punished if the fund loses money in the market. Texas must be conservative in their investments, focusing on the goal of not losing money rather than making it, which, for some reason, has been a lesson not easily learned.

Whether the fund in Texas works out will determine the implementation of similar programs in the future. If it fails, states must consider a serious reorganization of higher education. Universities and their states must work together in new ways and share the responsibility of offering quality education at a fair price.

Though we at the College of William and Mary seem to have been tightening our belts for quite some time, most state universities still have a long way to go in terms of cutting costs. Above all, until states set clear standards for reasonable tuition, universities will continue to raise costs because they will always be able to find students willing to pay. To those who would prefer less state involvement in public institutions: go to a private school.

E-mail Russ Zerbo at [email protected]

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