- The Washington Times - Tuesday, December 3, 2002

Rising school fees and the weak economy have forced states across the country to raise the costs of their prepaid college tuition plans to avoid deficits.
Some states have also attempted to limit the number of new families allowed to join the programs by shortening enrollment periods.
Twenty states offer plans that allow parents to lock in the cost of tuition for use in the future either by purchasing "units" of tuition or contracts with states. A unit is a fixed percentage of tuition. The money is released when the child is ready for college.
Costs are based on tuition and fees at four-year public universities, which rose an average 9.6 percent this academic year, according to the College Board, a national association of more than 4,200 schools, colleges and universities.
The increase was far more than states had anticipated.
When the fiscal year ended June 30, many of the 20 states projected they could have multimillion-dollar deficits over the next 10 to 15 years if the economy continues to slump and tuitions keep rising. Until then, states that began prepaid tuition plans in the 1990s had projected surpluses.
Maryland has raised the cost of its plan a maximum of 30 percent, said Joan Marshall, executive director of the College Savings Plans of Maryland. Not all parents experienced the 30 percent increase; some pay less based on a host of factors, including whether they invest money in a lump sum or make payments over time.
Even though rates are increasing, the prepaid college plans present a sound investment, Ms. Marshall said. "We don't want to scare people away. A lot of parents see the prices are increasing and they throw their hands up and say, 'Oh well.' In fact, this is one of the best things you can do to prepare for the cost of your child's education."
Virginia raised its rates 25 percent this year, said Diana Cantor, chairman of the College Savings Plans Network and executive director of Virginia's fund. She could not estimate the deficit Virginia would face if it did not raise rates.
The District opened a prepaid college tuition fund this fall. A spokeswoman for the Calvert Group Ltd., a Bethesda company that administers the District's fund, did not return telephone calls yesterday.
Neither Maryland nor Virginia will limit the number of new families allowed to join their programs as other states have done. Maryland and Virginia officials both cited rising school fees as a primary reason for raising their rates.
For example, the University System of Maryland Board of Regents in May approved a fiscal 2003 tuition increase of 5.5 percent at the 11 schools it oversees, including the University of Maryland at College Park.
Despite rising costs for prepaid tuition, parents see the programs as a better alternative than waiting until their children are of college age.
"It may turn out that my kids are rocket scientists and this will only be a drop in the bucket, but I can sleep better knowing that I have done this," said Gary Segal, an Ellicott City, Md., resident who recently invested $38,000 in a lump sum for his daughters, who are 4 and 6.
About 100 parents have joined Maryland's program since the open enrollment period began Nov. 14. Ninety percent of each year's participants sign up in the final 10 days of the period, Ms. Marshall said. The current open enrollment period ends March 14.
Susan Moriarty, an Ellicott City pediatrician with two young sons, is considering investing in the plan. "If anything, [the rate rise] makes me more anxious to do it. If they raise rates again next year, I will know I got in at a lower price," she said.
Maryland and Virginia are not alone in raising rates.
Ohio, which projected a $46 million deficit, raised the cost of each unit of tuition four times in the past year to $82 a unit, a 53 percent overall increase. The fund's executive director, Jackie Williams, said the cost could increase again if tuition at Ohio's 13 public four-year universities continues to rise.
The state legislature eliminated a 6 percent cap on annual tuition increases around the same time the economy nose-dived, causing the fund's investments to fall short of its projected 7.5 percent rate of return.
"It's probably pretty much a forgone conclusion that tuition will not go down, so I'll continue to buy as many as I can," said Mark Gutter, an Ohio accountant who has three children, ages 5, 8 and 12.
West Virginia delayed its enrollment period two months, to Nov. 1, and raised prices 15 percent. Those moves followed warnings in September that the state would be $16 million short if everyone invested in its tuition fund cashed in.
Tennessee, which projected a $6 million deficit, considered closing its program to new families, only changing its mind after lawmakers agreed to provide more education funds and cap tuition spikes. The program still raised prices 4 percent.
Washington, which projected a $21 million deficit, increased unit prices 24 percent to help rebuild the $4.5 million reserve fund it drained last year as it paid out tuition commitments.
"If we had about five years like this, we may be in trouble," said Betty Lochner, the program's director. "But it's early enough now that we can adjust."

This article is based in part on wire service reports.

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