Tuition program turns risky

Published 12:00 am Tuesday, March 10, 2009

If you have enrolled your child in Alabama’s prepaid college tuition plan, there may be cause for some concern. According to State Treasurer Kay Ivey, the Wallace-Folsom Prepaid Affordable College Tuition Plan has lost 48 percent of its assets going from $899 million to $463 million.

Parents pay a fixed amount when a child is young in anticipation of getting the tuition and mandatory fees paid at an in-state public university when the child finishes high school. To get the money, the program invests most of it in the stock market.

Up until this year, the plan has worked wonderfully well, but the downturn in the economy has caused the program to take a significant hit. Another major problem is that our major universities are increasing tuition almost every year. Ivey asked university leaders to freeze tuition this year, but that move was rejected.

Because the program has taken this major blow, Ivey sent out a letter to all of the program’s participants informing them of what is going on, and her office has been inundated with calls about the financial problems. Right now, there hasn’t been a rush to withdraw.

“Is there enough money to pay all the obligations? No,” Ivey said at a news conference last week.

While this significant drop is troublesome, Ivey said they have still been able to pay the tuition of the current 12,000 students in school under the plan. The main issue is that the state cannot guarantee that the money will be there. Although it isn’t necessarily promoted this way, the prepaid college tuition plan is an investment, and there is risk involved.

If your child won’t graduate for another decade, you’ll probably be OK because the stock market is likely going to turn around. The best thing to do might be to take a wait and see approach.

However, if your child is going to graduate next year, you need to investigate this situation right now because you need to know whether your child will be able to afford going to their state college of choice. Otherwise, these families will need to consider other options.