The state's prepaid college tuition program remains popular with parents, despite big increases in the cost.
Even after raising prices by the biggest amount in its history, the state’s prepaid college tuition program remains popular enough with parents to put it “roughly on track” to be fully funded in 17 years, state risk analysts said Thursday.
But that future could be derailed if state universities take advantage of legislation that allows them to set different tuition rates for different programs, said Troy Dempsey, an actuary, or risk analyst, with the Office of the State Actuary.
On Thursday, Dempsey and State Actuary Matt Smith presented an annual report on the health of the Guaranteed Education Tuition (GET) program to a legislative committee in Olympia headed by Sen. Rodney Tom, D-Medina.
The issue of full funding is a concern for the Legislature, and, ultimately, for taxpayers. It’s not a direct threat to parents who hold GET credits, because the GET contract promises that the Legislature will make up any shortfall in funding.
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GET began running into funding woes during the economic downturn, when the combined forces of double-digit tuition growth and the falling value of its investments caused the program to become underfunded.
To build up reserves, the cost of a GET unit increased this year by more than at any time in the history of the 14-year-old program, jumping from $117 in 2010-11 to $163 this year.
About $19 of every GET credit purchased this year is being used toward a recovery plan to make the fund solvent, Dempsey said.
Under GET, 100 units pay for the equivalent of a year’s tuition and state-mandated fees at the state’s most expensive institution.
The program’s goal this year was to sign up 10,000 new accounts and — despite the price increase — GET reached 95 percent of its goal, opening 9,486 new accounts, said GET director Betty Lochner. Smith said it’s hard to predict how parents will respond to future increases, but “we’re pleased our first-year results are on track.”
The program is still underfunded. The value of all the tuition credits sold is $2.8 billion, but the value of the fund is only $2.3 billion. Theoretically, if everyone cashed in their tuition credits at once, the state would have a shortfall of $527 million, Dempsey said.
The likelihood that the Legislature would have to subsidize a GET shortfall over the next 50 years is about 2.4 percent, he said. Dempsey came up with the figure by modeling 5,000 different scenarios — combinations of more or fewer people buying credits, better or worse returns on investments, and higher or lower increases in tuition.
Another issue is how GET might be affected by differential tuition.
Last year, the Legislature approved a bill that gives the state’s four-year schools the option of charging higher tuition for certain programs that cost more to deliver. For example, a university might charge more for an engineering degree than an English degree because it costs more to educate an engineer and less to educate an English major. (In effect, the English majors are subsidizing the engineers.)
But under the terms of the GET contract, the state is legally obligated to base its payout on the highest tuition, so the most expensive degree could become the new baseline for GET payouts, legislative staffers said.
The committee did not come to any conclusions Thursday, although it talked about a variety of ways to address the differential tuition problem, including repealing differential tuition.
Katherine Long: 206-464-2219 or email@example.com. On Twitter @katherinelong.