State tuition program ties down college costs

The Texas Comptroller’s office has opened enrollment to its new prepaid college tuition plan despite a rocky past with a similar program.

More than 17,000 families have already participated in the Texas Tuition Program Fund, which allows parents to purchase tuition equivalents at current calculated prices for use when their children eventually head to college years from now.

 “When you look at the draw of prepaid tuition, it is the rise in college costs that is a primary driver,” said R.J. DeSilva, spokesman for the Texas Comptroller. “It’s very appealing to want to save money in the future.”

Between 2003 and 2008, the average price of tuition at a state four-year college has risen by 63 percent — to more than $3,000 per semester — according to The Texas Higher Education Coordinating Board.

And for the first time, the nation’s aggregate student loan debt was higher than its credit card debt this year as young men and women struggled to pay for school.

“There’s no way to estimate how costs will rise in the next decades,” DeSilva said.

Under the Promise Fund plan, families can purchase up to six years’ worth of tuition “units” based on 2010-2011 academic costs that all public college in Texas must honor in the future. Enrollment ends in February and participants can pay monthly installments on the units over 10 years.

However, the program only covers tuition and fees and not room, board, textbooks or other hefty college costs. The units also lose value if a student chooses to attend a private or out-of-state school, since those institutions are not required to transfer the full dollar value of the units.

Mark Kantrowitz, creator and publisher of FinAid.org, said those restrictions add to his reservations with prepaid tuition programs.

Though DeSilva noted college savings plans are subject to rising tuition costs while the Promise Fund is not, Kantrowitz preferred savings plans because of lower premiums and higher returns.

“Generally, I do not recommend prepaid tuition plans,” he said. “The risks may be just as high as college savings plans despite the guarantees.”

Both plans bank their growth in the stock market, but a savings programs can ensure parents benefit from all the gains.

A prepaid tuition program does not give back more returns than purchased. And if stocks fall, Kantrowitz warned, states may not have the money for all future obligations.

Those high risks have worried families who participated in the state’s prior prepaid tuition program, the Texas Tomorrow Fund. DeSilva stressed those participants are guaranteed what they bought but said financial woes could jeopardize the Tomorrow Fund’s balance sheets by 2015.

“The state Legislature would have to infuse money into it by that point in time,” DeSilva said.

The Tomorrow Fund entered troubled waters when the state lifted tuition caps for public colleges in 2003. The old fund could soon pay out more than it has in assets.

Hoping to avoid similar complication with the Promise Fund, the new program mandates public colleges must honor tuition units purchased at current prices and cushion the different themselves.

The Tomorrow Fund might have to pass its cost differences onto the Legislature and taxpayers.

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Neal Morton covers education and general assignments for The Monitor. He can be reached at (956)683-4472.