Editorial: 529 savings should take place of GET plan

Washington state’s prepaid college tuition plan was begun 17 years ago, at a time when tuition increases looked to be as certain as death and taxes.

The marketing pitch for the Guaranteed Education Tuition plan was simple: Pay tomorrow’s tuition prices today (plus a premium). Since tuition increases were routinely higher than investment returns in the financial markets, and the state assumed all the investment risk, this was a very attractive option for families that could afford to set aside money.

But the Legislature has cut tuition for the next two years, following two years of freezes, and GET investors are facing the prospect that their payouts will be worth less than their investments, which is the opposite of the intended outcome.

There may be thousands of families in this position, so the GET committee decided to suspend the sale of prepaid tuition units for two years while figuring out how to cope with the new reality. Lawmakers passed a two-year tuition cut of between 5 percent and 20 percent for state colleges, and pegged future increases to the state’s average wage, which typically rises by about 3 percent per year. That’s far lower than the 34 percent tuition increase over the previous five years.

So the bad news in the good news of tuition cuts is the impact on GET.

Along with freezing sales for the next two years, the GET committee decided to refund the fees it has charged investors since 2011 to make up for the fund’s lagging performance in the markets. At its September meeting, the committee will decide whether investors can be refunded their money without penalties. And it will discuss whether the state should start a 529 college savings.

This might be the time to drop the GET altogether and begin a 529 plan, which is what most states offer. Such plans rise and fall with the markets, and there is no government bailout. As long as the money is spent on higher education, it isn’t taxed.

The GET was a nice idea for its time, but it was designed with the notion that tuition would move in only one direction: up. Future legislatures could raise, lower or stick with the current tuition formula. That uncertainty makes it difficult to manage the program, and it could force the state to charge investors more, making it less appealing.

Tennessee dumped its prepaid tuition plan after the markets tanked during the Great Recession. Washington reacted by raising tuition unit costs. In 2008-09, a GET unit cost $76 and rapidly rose to its current price, $172. The current payout is $117.82. Investors testified at a recent GET hearing that they’re concerned about remaining “under water.”

The days of the GET being a good investment could very well be over. And since myriad 529 plans are available, it doesn’t make sense for the state to continue to scramble to preserve a program designed using a different set of assumptions.