Now may be worst time to buy state's prepaid tuition
OLYMPIA, Wash. (AP) - This may be the worst year for Washington parents looking to buy prepaid tuition credits for their children.
If a Republican-led coalition and a liberal Democrat have their way, lawmakers would spend the next couple months developing a plan to scrap the Guaranteed Education Tuition program altogether. Other lawmakers from both parties, meanwhile, are looking put enough money into higher education that the price of prepaid tuition could plummet in the coming years.
The Legislature has left itself few options for the GET program after years of cutting state support for universities, pushing tuition rates up dramatically and the GET program into a financial hole. Just four years ago, parents used to be able to prepay a year's worth of tuition for $7,600. That has more than doubled.
People can now reserve a year's worth of tuition by investing $17,200 in the GET program - a hefty premium on today's tuition prices. Students at the University of Washington are paying about $11,800 in this academic year.
If lawmakers are able to provide enough funding to keep tuition flat over the next two years, which is a goal of many legislators, the state actuary projects the price of prepaying a year's worth of tuition would plummet from $17,200 to $14,400. If funding continues to increase to a goal touted by some Democrats, the price of a prepaid year would drop to $12,300 - a drop of 28 percent from today's rate.
Democratic Rep. Chris Reykdal, who comes from the left side of his caucus, actually agrees with the GOP-led coalition in the Senate on their proposal to eliminate GET, even though they are on opposite sides of the political spectrum. He said lawmakers would have to intensely study the impact of investing money to drop the price of GET credits, because he suspects some people who invested in the last couple years wouldn't be able to break even on the purchase until many years down the road.
Reykdal said the scenario of keeping GET open seems to pressure the state into continuing to raise tuition prices in order to make GET investments worthwhile for people. But he says that will further hurt poor people, who may not have the means to invest in GET and will face massive tuition prices when college arrives.
"Right now we're working against ourselves," Reykdal said. He believes the program is mostly now a subsidy for higher-income residents.
Matt Smith, the actuary who put together the alternate GET projections, said GET officials will have to consider the impact of unit prices that could create inequity in the system.
"How do they want to handle the two or three years' worth of purchases that took place at a higher price?" Smith said. "That's certainly a consideration."
The price of prepaid tuition has never dropped in the program's existence, and GET program director Betty Lochner cautioned that prices may never fall. She says if lawmakers invest more money into the system to keep tuition down, GET could keep prices stagnant in order to rebuild its reserve. She said it could be dangerous in the long term if GET prices declined, since the state has to be prepared for more economic troubles.
"You have to be really careful and really thoughtful about that," Lochner said.
Lochner also said GET is designed more like an insurance program than an investment program, so it's not built for people to play like the stock market. She said it's particularly targeted for people with young children who are investing for the long term.
A coalition dominated by Republicans in the state Senate has suggested the state needs to explore a way to get out of the GET program, since it currently has a $631 million unfunded liability. Leaders in the Senate have yet to propose how they would shut the program down.
Lawmakers could fix the financial hole in GET by suppressing prices in the program. Smith's analysis found if lawmakers simply prevented tuition hikes over the next two years, the unfunded liability in the program would shrink dramatically.
"It shows how sensitive the program is to tuition and changes in tuition policy," Smith said.
If a Republican-led coalition and a liberal Democrat have their way, lawmakers would spend the next couple months developing a plan to scrap the Guaranteed Education Tuition program altogether. Other lawmakers from both parties, meanwhile, are looking put enough money into higher education that the price of prepaid tuition could plummet in the coming years.
The Legislature has left itself few options for the GET program after years of cutting state support for universities, pushing tuition rates up dramatically and the GET program into a financial hole. Just four years ago, parents used to be able to prepay a year's worth of tuition for $7,600. That has more than doubled.
People can now reserve a year's worth of tuition by investing $17,200 in the GET program - a hefty premium on today's tuition prices. Students at the University of Washington are paying about $11,800 in this academic year.
If lawmakers are able to provide enough funding to keep tuition flat over the next two years, which is a goal of many legislators, the state actuary projects the price of prepaying a year's worth of tuition would plummet from $17,200 to $14,400. If funding continues to increase to a goal touted by some Democrats, the price of a prepaid year would drop to $12,300 - a drop of 28 percent from today's rate.
Democratic Rep. Chris Reykdal, who comes from the left side of his caucus, actually agrees with the GOP-led coalition in the Senate on their proposal to eliminate GET, even though they are on opposite sides of the political spectrum. He said lawmakers would have to intensely study the impact of investing money to drop the price of GET credits, because he suspects some people who invested in the last couple years wouldn't be able to break even on the purchase until many years down the road.
Reykdal said the scenario of keeping GET open seems to pressure the state into continuing to raise tuition prices in order to make GET investments worthwhile for people. But he says that will further hurt poor people, who may not have the means to invest in GET and will face massive tuition prices when college arrives.
"Right now we're working against ourselves," Reykdal said. He believes the program is mostly now a subsidy for higher-income residents.
Matt Smith, the actuary who put together the alternate GET projections, said GET officials will have to consider the impact of unit prices that could create inequity in the system.
"How do they want to handle the two or three years' worth of purchases that took place at a higher price?" Smith said. "That's certainly a consideration."
The price of prepaid tuition has never dropped in the program's existence, and GET program director Betty Lochner cautioned that prices may never fall. She says if lawmakers invest more money into the system to keep tuition down, GET could keep prices stagnant in order to rebuild its reserve. She said it could be dangerous in the long term if GET prices declined, since the state has to be prepared for more economic troubles.
"You have to be really careful and really thoughtful about that," Lochner said.
Lochner also said GET is designed more like an insurance program than an investment program, so it's not built for people to play like the stock market. She said it's particularly targeted for people with young children who are investing for the long term.
A coalition dominated by Republicans in the state Senate has suggested the state needs to explore a way to get out of the GET program, since it currently has a $631 million unfunded liability. Leaders in the Senate have yet to propose how they would shut the program down.
Lawmakers could fix the financial hole in GET by suppressing prices in the program. Smith's analysis found if lawmakers simply prevented tuition hikes over the next two years, the unfunded liability in the program would shrink dramatically.
"It shows how sensitive the program is to tuition and changes in tuition policy," Smith said.
It shouldn't be this difficult to go to college.
Putting your money into GET is like paying Social Security taxes and hoping the program will still be viable 15 years in the future. It's a bad idea. Plus, if you have that money set aside, then it gets counted against you when applying for scholorships and grants. A much better solution is to put your money into an Indexed Universal Life product which grows at 8%, is tax sheltered, and will not be held against you when you put your kids through college.
@Magic 8 Ball
That's not a GUARANTEED 8%, is it? If so, what company is offering this? I can see getting an actual 8% return over the last few years, but that's because the stock market has gotten about a 20% return over that same time. What kind of rate do they guarantee?
That's an average rate of return tied to the S&P 500. Guaranteed to go up with the S&P, but to not go down in the bad years. It's not guaranteed at 8%. This year it will be a lot more. The guaranteed rate is 2.5% return if the market if flat or goes down. Beats the heck out of any other guaranteed rate that I know of.
This drives me crazy! Those of us who had the foresight to invest in our children's future are being scapecoated by those in charge of our goverment's purse strings. My wife and I are not "higher income residents" like Mr. Reykdal has stated. We are middle class parents who sacrifice over $300 dollars each month so that our kids can attend college. No one ever mentions what the state does with our money that we give every month. The tradeoff is that the state gets our money NOW and uses it. Please stop acting like we are getting something for nothing! The latest State Actuarial comments say that if the morons in Olympia just leave it alone for two years, it will become solvent again. My kids can't qualify for the FREE education given to underprivileged kids because god forbid, we earn "too much." The state has used my money for 8 years now, so don't try to tell me that my family is getting unfair benefits when it is time for my kids to start college. Last I looked, the program was open to everyone. You just had to choose to make sacrifices in other parts of your financial life. Just because you didn't choose to do this, don't blame me for doing so!
Another great government program that wasn't very well thought out. I hope the people invested at least get their money back. I'm not sure why anyone actually trusted the government with a program like this anyway.
I have some money in GET. What would happen to it all if the state shuts the program down for good? Will I be entitled to pull that money out with no penalties?
@Ethan Allen The law states that you'll always get back what you put into it. Of course you can pull it out and take a penalty now if you're concerned. We have about 300 credits purchased over 8 years and I think we're going to stop contributing now. I'm not pulling out our money but am reluctant to put in any more. We'll invest elsewhere, at least for now.
I have 529's for my kids, too. I am not sure I understand why this is the better option, but I have heard that I could benefit from the 529s more than if I were to acquire GET credits. Perhaps someone can explain it?
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Thanks,
All the more reason why I joined an out of state 529 plan.