MONTGOMERY, Ala. — State-run trust funds for parents who want to pay off college tuition before their children enroll are running short on cash, and program officials worry they won’t be able to pay for students who are counting on the money.
The rising cost of college and the plunging stock market have combined to create a disparity between what some of the 18 states’ prepaid tuition plans have on the books and what they’re supposed to pay. The worst case is in Alabama, where the sour economy has sliced off nearly half of the fund’s assets.
“I thought the money was in the bank,” said Montgomery attorney Larry Menefee, who was caught by surprise when he received a letter telling him that tuition for his triplets, who are starting college in the fall, wasn’t guaranteed.
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 state-run programs became popular 20 years ago as a way for parents to pay a fixed amount when a child was young for tuition at a lower price than what they’d pay if they waited until the child enrolled.
The spokeswoman for CollegeInvest, Colorado’s nonprofit higher-education-financing program, said Colorado closed its prepaid tuition program to new investors in 2002 over concerns about spiking tuition rates.
CollegeInvest spokeswoman Jennifer Robinson said the fund’s investors won’t see losses, although she also acknowledged the fund’s rate of return hasn’t been enough to keep up with tuition increases. “We realized the cost of tuition was increasing at an unprecedented rate, and we thought it wasn’t financially prudent for us to run a program in that manner,” she said.
The program lost about $2 million between 2007 and 2008, but Robinson said some of that was due to investors’ withdrawing funds to pay for their children’s college education.
CollegeInvest now oversees three programs that act more like traditional savings plans, such as retirement plans. They also have lost money as the economy has dipped, but Robinson said she didn’t have exact figures available.
CollegeInvest also saw about a 13 percent drop last year in contributions to those three plans, another reflection of an ailing economy.
Denver Post staff writer John Ingold contributed to this report.
