Sunday, October 12, 2003

Safety net for down years

Prepaid tuition: Plans suspended

Ohio and Kentucky's suspension of their prepaid college tuition programs sends a disastrous message about higher education here. Prepaid plans are the frontlines for reversing the brain drain and keeping young people here for college and beyond.

Ohio officials this week announced new purchases of college tuition credits will be suspended as of Jan. 1, 2004, and the halt will last at least a year. Kentucky's fund will stay closed through June 30, 2004. Since college tuition costs were rising faster than the funds' investment returns, Ohio, Kentucky and other states halted new purchases of tuition credits to protect families already invested. Ohio's guaranteed fund is secure, because it is backed by the full faith and credit of Ohio. Kentucky's fund is not backed by such a pledge.

The states should show some creativity to salvage these long-term investments in our universities and future work forces. Ohio state Sen. Eric Fingerhut, D-Cleveland, has proposed one solution. Since projected deficits only rise in years when Ohio permits excessive tuition increases and when the stock market slumps, Fingerhut proposes that Ohio deposit in a "sinking fund" enough money to cover the shortfall between current assets and the projected total needed when students redeem their tuition credits in future years.

Ohio's guaranteed fund now has 130,000 accounts and total assets of $760 million. But a June 30 report to the Tuition Trust Authority warns that Ohio would need to appropriate funds by 2014 to cover a projected "market value deficit" of $321.1 million. The authority projects tuition rates will increase by 10 percent a year for the foreseeable future while investment returns will generate only an estimated 7 percent a year.

Fingerhut argues these deficits can be avoided if Ohio sets aside a small amount of money today and allows the sinking fund to grow. "If investment returns recover and the state once again controls tuition increases," he says, "the sinking fund may not be needed, and the funds can be returned to the general budget."

Instead, Ohio families prepaying for their children's college tuition experienced an acute sinking feeling this week. Lawmakers need to get the guaranteed programs open again and fully funded.

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