Posted on Mon, Jan. 15, 2007

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College tuition plan in trouble

Parents worry state might not be able to honor prepayment program

The Associated Press

South Carolina’s Tuition Prepayment Plan is facing a $63.8 million shortfall and some state leaders say it needs to be changed.

The plan has been hit hard in recent years by a one-two punch of large increases in tuition and small returns on its investments.

More than 6,400 people have invested $124 million in the plan.

Republican Gov. Mark Sanford wants to close the plan to new participants and pump $41 million to take care of current enrollees.

The Tuition Prepayment Plan is one of two programs offered by the state of South Carolina to help parents pay for their children’s education. Officials say South Carolina’s Future Scholars savings program is healthy.

That plan allows people to put tax-free money into a savings account to pay for future education expenses.

“You never pay taxes on that money as long as it goes into education,” said new state Treasurer Thomas Ravenel. “This is what’s working around the country.”

The state plan that isn’t working is one that let families lock in a guaranteed tuition cost by paying in advance.

Greenville resident David McLaurin worries the state would go back on its promise that tuition and fees would be covered for his children, ages 12 and 10, at no additional cost when they enter college.

If the plan becomes insolvent, which is projected to happen by 2017, it would be liquidated and enrollees’ contributions would be refunded with 4 percent interest from the General Fund, Ravenel said.

“Any promises we’ve made are going to be met,” he said.

Rep. Bob Leach, R-Greenville, bought into the plan for his two grandchildren, a high school junior and a fifth-grader. Both want to attend Clemson University, which currently has the highest tuition of any state institution.

A refund of his investment plus 4 percent “won’t make up for the tuition increase,” Leach said.

And that, critics of the plan say, is exactly the problem.

“College tuitions are rising too quickly for this program to be effective,” said Sanford spokesman Joel Sawyer.

Sanford’s proposed $41 million bailout reflects figures at the end of calendar 2005, but the actuarial deficit grew to $63.8 million when the fiscal year closed June 30, according to the state treasurer’s office, which administers the program.

If the state finds additional revenue, Sanford “would be open to upping the amount this year” to meet the higher number, Sawyer said. If not, Sanford would recommend funding in future budgets.

Attempts to amend the plan have not fared well in the State House, but a new bill proposed in the state Senate would close the failing plan to new participants.

“We need to stop the bleeding,” said Sen. Greg Ryberg, R-Aiken, who co-sponsored the bill with Sen. Kevin Bryant, R-Anderson. “The first thing we have to do is stop new participants. We can’t expose the state of South Carolina to more liability.”

The program could recover if tuition increases continue to slow as they did this year, and if investment return continues to grow as it has since July, said Paige Parsons, senior assistant state treasurer.