By Kristina Goetz
The Cincinnati Enquirer
The agency that oversees Ohio's prepaid college tuition program announced Wednesday that new enrollments would be suspended immediately and that families already paying into the plan will have until the end of the year to reach their $2,000 annual investment limit.
The Ohio Tuition Trust Authority's board voted to suspend contributions to the fund's 130,000 existing accounts for 12 months starting Jan. 1, 2004, saying the measure was a move to protect the fund from increasing future liabilities.
"The Board has exhausted all available options, leaving only suspension as the last possible action to exercise in order to control the growth of the deficit," said Jackie Williams, the trust authority's executive director.
A June 30 report showed the guaranteed fund - which allows parents to buy units of tomorrow's tuition at today's prices - has a projected "market value deficit" of $321.1 million and that by 2014, the state would need to appropriate funds to meet tuition obligations. The fund now has total assets of $760 million.
The board cited a number of factors that contributed to the decision, including projections that tuition rates will increase by 10 percent annually for the foreseeable future while investment returns are projected at 7 percent annually.
Patrick Korosec, 36, of Anderson Township was upset but not surprised by the announcement. He has invested $8,000 over the past four years for his son, Coulton. But his financial adviser told him he'd be better off investing in Virginia's plan for his 1-year-old, Carson.
"It makes me wonder what's going to happen," he said. "I already started putting together a Plan B because we've all seen how the state of Ohio has been running lately."
The suspension applies only to the guaranteed fund and does not affect the agency's 17 other investment options offered through the trust authority and Putnam Investments. Williams stressed that the guaranteed fund is backed by the full faith and credit of the state, which means existing investments are secure.
The other plans are all market investment programs and are not backed by the full faith and credit of the state.
Accounts will continue to be administered and holders can transfer funds to another beneficiary, reallocate money into one of the other investment options or make withdrawals if the beneficiary is at least 18, officials said.
To cope with rising higher education costs and a downturn in the economy, the trust authority raised the cost of tuition units nine times in two years, from $51 to $95.
One unit can be redeemed at a value equal to 1 percent of the weighted average tuition of the 13, four-year Ohio public universities.
Officials said Wednesday continued sales would mandate further price increases, which would prolong the time it would take for account holders to break even.
"Obviously, if people want to look at other investment options now is the time to do it," Williams said.
But board members also stressed that the program's halt is temporary and that a review will be conducted in December 2004 to look at whether the program should be reopened.
The only board member to oppose suspending the program was Sen. Marc Dann, D-Liberty, who said the legislature should do more to control rising tuition costs. He said lawmakers should consider re-instituting tuition caps to keep tuition increases in check and should better fund universities to help keep costs down.
Leo Shane III contributed to this report. E-mail firstname.lastname@example.org
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