Wall Street Takes a Bite Out of Prepaid Tuition Programs

Many states over the last decade offered prepaid tuition plans that should help parents pay for the cost of their child’s college education. These programs were intended to allow families to buy all or part of a public in-state education at present-day prices. The value of the investment is guaranteed by the state to meet or exceed annual in-state public college tuition inflation

Texas is one of 18 states offering the plans, which allow parents to save for their children’s educations, locking in lower tuition rates. The idea was that market earnings would cover the increased costs when a student reached college age.

The plans didn’t count on major stock market losses.

Texas closed enrollment to its original prepaid tuition plan in 2003.

That fund is guaranteed by the state, meaning taxpayers will make up the difference between market returns and the actual cost when covered students enroll in college, said Allen Spelce, a spokesman for state Comptroller Susan Combs.

The projected shortfall on the Texas Tomorrow fund is now $206 million, said R.J. DeSilva of the Comptroller’s Office.

Texas has since started a new plan that would require the individual education institution to absorb and costs that were not covered due to a bad economy. The state would then not be responsible for additional spending if the market returns fall short of current tuition rates.

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