College tuition fund going broke

July 31, 2009 11:20:31 AM PDT
The program offered a deal to Texas parents with young children: prepay when Junior is small and you won't have to worry about the cost of tuition at a Texas university, even as rates climb. But with the rapidly rising cost of college, the Texas Guaranteed Tuition Plan is going broke. Comptroller Susan Combs, whose office administers the fund, said the plans are guaranteed by the state, so parents who enrolled in the program will get their children's tuition bills paid. But the fund, covering tuition and fees for about 119,000 children, is going broke and will require as much as $2.1 billion in taxpayer money to stay solvent.

The tuition plan was offered between 1996 and 2003. In 1997, voters approved a plan to guarantee the fund with the state's credit.

The fund was suspended when the state Legislature allowed universities to set their own tuition rates, making it hard to predict what it would cost to fund a future education. Since 2003, tuition costs have jumped dramatically and the fund will run out of money between 2015 and 2017.

A newer -- much costlier -- prepaid tuition plan created in 2007 is administered by an investment firm, not the state.

Combs said regardless of the costs, the state will have to cover the shortfall in the tuition fund, which was called the Texas Tomorrow Fund when it was created.

"The taxpayers of Texas voted this in, and the taxpayers of Texas have obligated themselves to pay this out over time," Combs said. "You can't pull a California and send (parents) an IOU. You have a hole, and you must get a shovel and start filling in."

The state will have to completely pay tuition and fees of children who have contracts with the fund for the next 15 to 20 years, Combs said.

Mark Hurley, a Dallas accountant who advises Combs on the plan, said the fund could run out of money sooner than 2015 if inflation or another stock market plummet plunders the fund.

John Sharp, the comptroller in 1995 when the fund was created, said there was no problem with plan at the time. Actuaries set the price based on costs and investment earnings. Sharp, now a Democratic candidate for U.S. Senate, said the price could have been adjusted over time as tuition costs rose and the stock market fluctuated.

The cost of a four-year college plan for a newborn in 1996 was about $10,500. It rose to about $17,500 in 2003.

By comparison, the cost of the new program created in 2007 is much higher, about $39,400 for an infant, and the investments are not guaranteed by the state.

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