Washington state has to change its popular prepaid college tuition program or risk financial problems down the road, a legislative panel learned Wednesday.
The Guaranteed Education Tuition Program 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,” said Senate Majority Leader Lisa Brown, D-Spokane. “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 college tuition at current prices. Under the program, participants buy a GET unit with a price calculated through a formula in which 100 units equals one year of tuition and fees at the University of Washington. The units are worth a comparable value whenever they are used. In other words, the state guarantees that 100 units bought in 2011 will be worth a year’s tuition at UW in 2021 or 2041, regardless of how much tuition costs at the time or what school the student attends.
Money used to purchase GET credits goes into a fund managed by the state investment board, which averages a return of about 8 percent, Brown said. But some years, college tuition has gone up faster than that.
A state actuarial report released earlier this year says that under some scenarios, GET 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 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 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 full-time 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 units would have to 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.