Tuition program faces trouble
Published 8:27 pm Monday, March 9, 2009
The turmoil in the economy has everyone concerned about the future. We worry about our jobs, our retirement, and our children’s future. Those concerns have now spread to thousands of Alabama families who thought they did everything they needed to make sure they could send their children to college.
Recently, letters from State Treasurer Kay Ivey went to 48,000 families who have participated in the Alabama Prepaid Affordable College Tuition (PACT) program, saying for the first time that the fund is in some difficulty. It also brought home something that came as a rude surprise to parents: there is no guarantee for this program.
Alabama is one of more than a dozen states to offer prepaid contracts for college tuition. The program was started in 1990 when the Legislature passed the Wallace-Folsom Prepaid Affordable College Tuition Plan. Four states have plans that are fully guaranteed by their state, and most of the other states authorize state lawmakers to cover contracts in the event of a loss. Alabama is one of three states that offers no government backing at all, because our state constitution prevents taking on such liability.
The way the program works is that parents or family members pay a specified amount in a lump sum or over a period of years that is supposed to be the value of tuition at a four-year institution. Back in 1990, the buy-in cost was around $5,100, and today it is up to $25,000.
Parents join the program as a way to lock-in tuition at today’s rates. It is a way for families to make college payments starting when their children are young, so that when they finish high school the money for college is there. The state invests the money and uses the earnings to provide four years of tuition and fees at a state public university. At least, that is how it is supposed to work.
PACT investments have lost 46 percent of their value in just a year and a half, with a 20 percent drop during the recent stock market tumble. The trust fund has almost all of its assets in stocks, and was worth nearly $900 million in 2007. Now the fund has assets around $484 million, only half of what it needs to meet all its obligations.
The fund is administered by the state treasurer. While investors of every stripe have taken a beating during the current economic crisis, there are questions being raised about the strategies used. The Retirement Systems of Alabama, the pension fund for teachers and state employees, has lost 23 percent in that same time frame. A tough loss for sure, but nowhere near the catastrophic loss suffered by the PACT program.
There is little doubt that the PACT program is troubled. Ivey and the 10-member board of directors will meet March 24 to decide how to proceed. In the mean time, legislators will watch the situation closely and await Ivey’s recommendations.
The economic crisis has put so much of the immediate future into question. The last thing anyone would want to see is for the current difficulties rob the young of a better future.