Sen. Mark Mullet, D-Issaquah, proposes a change that he feels is a better deal for families investing in their children’s prepaid tuition program.
Last week, The Seattle Times published an editorial titled “Leave state’s prepaid-tuition program alone” [Feb. 15, Opinion]. While I agree with its admiration of the Guaranteed Education Trust (GET) program, the Legislature has a unique opportunity to help middle-class families in our state send their kids to college. In this case, inaction does more harm than good for Washington state and those who invested in the program.
Washington’s GET program lets families purchase future college tuition at today’s prices. Families buy GET units — 100 units equal one year of tuition — and the state honors that promise whenever your child attends college.
Since 2012, GET account values have remained static because the state froze college tuition. I fully supported this policy because lower college tuition helps all Washington families. However, this policy and stock-market gains have left the GET program overfunded by 40 percent.
Senate Bill 6087, which the Senate passed 43-3, would allow GET holders to receive the cash value of their account if they switch to the new DreamAhead 529 college savings plan.
That may not sound like a big deal, but this extra money would mean a lot to the middle class families who chose GET as the investment vehicle to help send their kids to college. Currently, you can buy one year of tuition through GET for about $10,400. But if you bought those 100 units before July 2015, they’re actually worth about $14,400.
This represents a 40 percent increase in families’ GET account value, at no cost to the State’s General Fund. We are simply returning the investment earnings from the past couple years in the GET program to the families who were trying to put money away to help send their kid to college.
The Times’ editorial made two primary critiques of this policy. The first is that 529 plans are risky because they invest in the stock market. In addition to assuming that families won’t make smart investment decisions, this ignores the reality that our new 529 plan has an option that invests no money in stocks, only in conservative bond investments. If a family has a child in high school already, they don’t need these funds in the stock market — they could switch to the new plan and be happy earning conservative bond fund returns.
The second critique is that the bill is treating GET fund reserves as a profit to be shared. This criticism would be valid if sharing this profit was putting the state or remaining GET holders at greater financial risk, but the reality is the opposite.
The state actuary made a thorough report on SB 6087, and it shows why this bill would reduce the state’s liability and lower risk. If half of GET holders made the switch, those still in the program would still have the same 40 percent cushion. However, the state’s risk would be reduced because the number of outstanding GET units would be cut in half.
Think of the GET account as a glass of water. If it gets knocked over during a recession next year, would you rather it was half full (7.5 million units) or full to the brim (the current 15 million units)?
The Times interviewed former State Treasurer Jim McIntire, who said lowering the reserves would increase risk. But current State Treasurer Duane Davidson and our nonpartisan state actuary disagree, saying that using reserves in return for reducing the amount of outstanding GET units is a strategy that reduces risk for the state.
This is a win for Washington because it reduces our liability risk. This is a win for middle class Washington families because they have the option to receive an extra 40 percent in their kids’ college savings account. Let’s continue our good work in Washington state to make college more affordable for the middle class.