State residents will have a new option for college savings under the new Washington College Savings Program that went into effect this month.
Previously, Washington had a single college savings program, known as the Guaranteed Education Tuition program, or GET.
The GET program works like insurance, with the state acting as guarantor, said Brian Dixon, assistant vice president of student financial services at Washington State University. Individuals purchase units – at a cost of roughly $117 per unit – which cover part of the cost of a year’s tuition at any public institution. The purchase of 100 units covers 100 percent of a year’s tuition, and the arrangement is guaranteed by the state.
“The challenge (with GET) is that tuition has been frozen, and it’s decreased, and a bunch of things have happened so in some situations people ended up paying more for the GET units than what the tuition was worth,” he said.
Unlike GET, the new WCSP savings program functions like an IRA. People can choose whether they want to invest aggressively or conservatively, according to their own judgment.
Neither GET nor WCSP accounts are taxed for growth, as long as the funds in them are used for qualifying expenses like tuition, books, room and board.
That doesn’t necessarily mean that GET values will drop again, or that the original program is a bad one, Dixson said. But the WCSP provides another choice.
With the WCSP, parents who purchased GET units have the option to switch the cash value of their account and get a small kickback as an incentive.
“There will be a three-month period of time where people who are in GET can make the choice to move over,” he said. “If they move over, it’s expected that they’ll get about a 38 percent increase on the about $117 original purchase per unit.”
Those who choose to keep their GET accounts could also see benefits on a smaller scale, Dixon said. Individuals who purchased account units before July 1, 2015, could see as much as a 15 percent increase in their account funds after the transition period ends.
Under WCSP, account holders have more options for what they invest in and the possibility for greater returns – but also a bigger financial risk if the stock market takes a tumble. With GET, the state takes on the financial risk.
People weighing the two programs should consider their risk tolerance, Dixon said. GET provides more stability, but doesn’t create the same opportunity to grow.
Parents and students should also consider other ways to fund college education beyond college savings plans, he said. State and federal need grants, as well as scholarships, should be considered.
“This savings plan is a portion of what you’re going to do,” he said. “But what are the other things you’re going to do to help fund your schooling?”
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