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OLYMPIA – The state will suspend sales of GET units for as long as two years as the board overseeing the program wrestles with the downside of what many lawmakers saw as a major benefit of the last session: lower tuition at state colleges.
The Guaranteed Education Tuition Committee also signaled Tuesday the state would likely waive fees to investors who demand a refund for units purchased in recent years that are worth less now than when they were bought. That's possible because the Legislature froze tuition for two years in 2013 and last month cut tuition between 5 percent and 20 percent for different schools over the next two years.
Such a decision can’t come soon enough for Carrie Petz, a Vancouver mother who said she bought $75,000 worth of GET units four years ago for her 11 year-old-son, and they are worth a little more than $50,000 now. By the time he’s ready for college in four years, they may not even regain their original value, she said.
Petz said when she bought the units, she didn’t realize some aspects of the program, including “the fact that it is tied in with legislation and decisions that politicians will make.”
Her situation is not unique, GET staff told the committee. There may be thousands of families like her who bought GET units in recent years and whose children will start college before their units are worth the initial investment. The staff recommended the committee approve refunds without monetary penalties for anyone in that situation starting immediately, but members said they wanted two weeks to study some of the impacts.
The GET program allows a person to buy tuition for a future student at the current rates. The program sells units, with 100 units being equal to the cost of one year of tuition and fees for a resident undergraduate student at the University of Washington, the most expensive public university in the state. The units can be purchased in a lump sum or on a payment plan and can be redeemed years later for the value of the current UW tuition at any college in the state, and most outside of Washington.
The program began in 1997, and for most of the years since it has been popular as tuition rose faster than inflation. A GET unit went gradually from $42 in 2001-02 to $76 in 2008-09, then began some rapid jumps so that the most recent price was $172 per unit.
In the recession, tuition rose much faster than inflation because the Legislature reduced state aid to its colleges and universities, and allowed the institutions to hike tuition to cover some of the difference. It went up so quickly that starting in 2011, the program charged an “amortization fee” to new buyers because of fears that the program wouldn’t have enough money to redeem all units in the future.
In 2013, however, under a push by Senate Republicans, the Legislature froze tuition for two years. This year, they went even farther and pushed through tuition cuts of 5 percent for all state colleges and universities this year, to be followed next year by 10 percent cuts at UW and Washington State University, and 15 percent at Eastern, Western and Central state universities in the fall of 2016.
That removed fears the program wouldn’t cover future redemptions. On Tuesday, the board voted to refund the amortization fees paid by new buyers since 2011.
“We thought we were doing the right thing,” Beth Berendt, a committee member said of the fee. “It was an effort to calm the fears of legislators, many of whom are no longer in office. In hindsight, we should have just stayed the course.”
The committee then agreed to delay the sales of new GET units for as long as two years, while the state colleges and the Legislature work with the new tuition reductions. It also will study the feasibility of opening a different kind of savings program for college education that could be guaranteed by the state.
“This is the pause button,” State Treasurer Jim McIntire, a committee member, said.
But it delayed for two weeks a decision to offer refunds without the standard penalties to people who paid high rates for units since 2011. Berendt said she wanted to see the language in the waiver form those investors would sign, to make sure the program had no liability if someone withdraws their funds, should tuition jump dramatically again in a few years and make those units move valuable than expected. Staff said the program has such waivers and letters of explanation for the committee to review.
Petz said she’d be happy to sign such a waiver right now to get back the money she invested. She acknowledged she didn’t know everything about the complicated program. She took the recommendation of friends who bought GET units for their small children and “had nothing but good things to say about it.” No one pointed out the potential downside of buying units for an older child, where the investment might not have time to grow sufficiently before he enters college.
When she heard tuition was going down, she didn’t cheer. “I said, ‘Uh oh. My GET money is going to go down even more.”
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. . .