A state law passed this week will establish a college savings plan for Washington residents, but GET, the old prepaid-tuition plan, will remain an option, too, once it reopens.
Washington parents will have a new way to save for college later this year when the state opens its first-ever 529 plan, a type of college savings plan offered by many other states.
They’ll also still be able to pay tuition in advance, through the state’s Guaranteed Education Tuition plan, or GET, when the plan reopens. The new legislation stipulates that GET must open again to new investments by July 2017.
The Washington College Savings Plan was passed by legislators with strong bipartisan support this week and is expected to be signed into law by Gov. Jay Inslee. The 529 option would be available by the end of the year.
A 529 savings plan is somewhat similar in design to a 401(k) retirement-savings plan — while there are tax advantages, you don’t receive the kind of guarantees you have in GET.
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The savings plan will be governed by the same committee that oversees GET, and is meant to complement the prepaid tuition plan, said its sponsors, Sens. David Frockt, D-Seattle, and Mark Mullet, D-Issaquah.
For people who have money in GET, it will be possible to transfer money — perhaps as easily as clicking a button or two on the GET website — to move money to the new plan.
GET allows participants to pay for tuition in advance, and at a premium price. One hundred GET units are guaranteed to pay for a year of tuition at the state’s most expensive public college, no matter how much tuition has gone up since the units were purchased.
That has worked out well for parents who bought many years ago. For example, in 2006 a GET unit cost $66, and today is worth $117.
But GET ran into financial hot water during the recession, when the stock market fell at the same time that tuition prices rose by double-digit percentages.
Since then, the fund has stabilized. But tuition has also been reduced, raising questions about whether GET will continue to be a good investment in the future. The payout value has been frozen at $117, and the fund is also frozen to new investments, except for those paying on a monthly payment plan.
Frockt said there is no plan to lower the payout value at this time. That decision lies with the GET committee.
In September, the GET committee voted to give investors until December 2016 to pull their money out of GET without incurring state penalties. About 9 percent of GET’s funds have been withdrawn by investors to date, Frockt said.
Many investors have said they were waiting to see if the state would create its own 529 plan before deciding what to do with their money. GET has been popular with state residents, and contains nearly $3 billion in assets.
Many states offer 529 savings plans, and investors are not limited to the 529 plan offered by the state in which they live. But Frockt said it makes sense for Washington to offer its own plan because it eliminates the need to request a GET refund check, then go through the paperwork to transfer the money to another state’s fund. “This is seamless,” he said.
GET and the 529 plan could also work as “kind of a hedge to each other,” Mullet said. Once GET reopens to new investments, a family could invest some portion of their college savings in the prepaid tuition plan, using its guaranteed payout as a hedge against losses in the stock market. And another chunk of money could go in the 529 plan, which would grow if the stock market has a strong run.
Last year, Washington became the only state in the nation to cut public college and university tuition. The law that cut tuition also tied future increases to the state’s median family wage, which goes up by about 2.1 percent a year.
Will the Legislature hold to that promise? Frockt said he believes it will. He’s heard from his colleagues that they don’t want any more wild swings in tuition bills.
“We want to have a stable tuition policy, that’s the big thing I’m hearing,” he said.