Washington state has to change its popular prepaid college tuition program or risk financial problems down the road, a legislative panel was told Wednesday.
The Guaranteed Educational Tuition Program, known to most parents simply as GET, could face insolvency in the long-run because the fund’s return on investments isn’t keeping pace with rising tuition costs.
“I don’t think we have a serious problem at this time,” Senate Majority Leader Lisa Brown, D-Spokane, said. “We are trying to avoid creating some kind of unfunded liability problem in the future.”
Since 1998, nearly 120,000 families have opened GET accounts, buying future tuition for Washington colleges at current prices. Under the program, participants buy a GET unit with a price calculated on the current cost of tuition, so that 100 units equals one year of tuition at the University of Washington. They can “cash” the units at some future date and the state guarantees they will be worth the comparable value at that point. In other words, the state guarantees that 100 units bought in 2011 for $11,700 will be worth a year’s tuition at UW in 2021 or 2041, regardless of how much tuition rises or what school the student attends.
Money used to purchase GET credits go into a fund managed by the state investment board, which averages a return of about 8 percent. But some years, college tuition has gone up faster than that.
A state actuarial report released earlier this year says that under the some scenarios, that fund could run short of money, and the state would be on the hook for the difference. . .
. . . If the program stays as is, “the chance that the state would have to make contributions over the next 50 years is low, but should it occur, the dollar amount is very high,” the report warned. Changing the plan would lessen the risk the state would have to pay, actuaries said.
Brown and Senate Minority Leader Mike Hewitt, R-Walla Walla, are among sponsors of SB 5749, a proposal to change the GET Plan later this year. All units purchased before the changes become law would be redeemed at the original rate, but units purchased afterwards would come under new rules.
* The biggest change would be that the units wouldn’t be tied to UW tuition, which is the highest of any state college in Washington; instead they would be tied to the average tuition at all state colleges, with a formula that accounts for the number of fulltime students at each institution.
* The calculation would no longer include the cost of student and activity fees. Students would have to pay those when they enroll.
* Once a beneficiary starts using his or her GET units, all those units must be used within six years.
* The state could impose new limits on the number of GET units purchased. Right now, the state can’t limit GET purchases to less than the cost of four years of UW tuition.
* The state would still give full refunds at current values if a beneficiary dies or becomes disabled, but could give a smaller refund for beneficiaries who choose not to attend college.
Sponsors are open to other suggestions, Brown told the Higher Education Committee, which got its first briefing on the bill and took no action Wednesday.
Hewitt likened the potential liabilities of the GET program to the problem Washington state had with state employee pensions in the 1970s. The costs of guaranteeing benefits for new employees was growing so fast the state couldn’t pay for them; it kept existing employees on that pension plan, but opened a new pension plan with pared back benefits for new employees hired after October 1977.
Brown said the current Legislature is still dealing with the costs of that original pension plan more than 30 years later. By making adjustments to GET now, it could spare some future Legislature from facing liabilities for the tuition program, she said.