Delays and price hikes for prepaid tuition

P By Albert B. Crenshaw

prospective college students and their families hoping to sign up for Maryland’s prepaid tuition program this year are going to have to wait awhile – and probably pay more.

On the other side of the region, families looking at Virginia’s prepaid plan won’t see a delay, but they, too, can expect a stiff price increase.

The problems plaguing prepaid tuition plans across the nation have reached the Washington area.

The Maryland Higher Education Investment Board, which oversees the state’s program, announced last week that this year’s enrollment period, scheduled to begin last Tuesday, has been deferred indefinitely.

The delay is the result of the University of Maryland system’s announcement that it is considering major increases in tuition and a restructuring of its tuition and fee setup.

The school figures it will get little additional money – and may face cuts – from the legislature as the state struggles to deal with its budget crisis. As a result, officials there are talking about tuition rises of 10 percent or more for in-state students, and that is on top of a 5.5 percent increase this year.

Proponents of such rises argue that Maryland is a higher-education bargain and that socking the well-to-do with higher charges is cost-effective, even if the school has to dole out more aid to less-affluent families.

But the impact on the prepaid tuition program is more complicated.

This program allows Maryland families to buy contracts now that promise to pay full in-state tuition and mandatory fees for up to five years of college sometime in the future.

But to make the program work, its officials have to project costs going forward and figure what they can earn on their investments, then work backward to settle on a price to the consumer, much the way a life insurer does.

When investment returns fall or tuition rises unexpectedly – as both have – prices of contracts have to go up. And when the size of future tuition increases becomes worrisome, officials are reluctant to commit to a price. That’s Maryland’s situation.

Joan E. Marshall, executive director of the Maryland plan, said last week that she hopes to be able to open enrollment for new contracts around the first of next month, but as of now, she doesn’t know what the price will be.

Virginia’s situation is slightly different. Its enrollment period isn’t scheduled to start until February, and while state schools in the Old Dominion are already boosting tuition and more increases are expected, the program expects to proceed on schedule.

Virginia officials also are not certain what their price will be, but a double-digit hike over this past enrollment season is likely, said the program’s executive director, Diana F. Cantor.

Virginia has a bit more flexibility than Maryland does, Cantor noted. Holders of Virginia contracts get the full benefit if the student attends a state college. But if the child goes to college out of state, the program pays back only the investment plus a money market rate of interest. So, based on the current low interest rates, the program would save money on every child who does not go to a Virginia state school.

Like Virginia, Maryland pays tuition and mandatory fees if the student goes to a Maryland state school, but it will also pay that amount if the child goes elsewhere. This means that the cost to the program is essentially the same for every contract – tough on the program but a very good deal for families.

Both programs, like most prepaid plans, are restricted to state residents, though Maryland’s is also open to District of Columbia residents.

Officials in both states urge families interested in the programs not to wait. Prices seem to have nowhere to go but up.