College savings plan hikes price nearly 40 percent
GET per-unit cost goes from $117 to $163 as tuition soars
Friday, September 9, 2011
OLYMPIA – Parents investing in their child’s future will find the price is higher as the Guaranteed Education Tuition Committee voted unanimously Thursday to increase their unit price nearly 40 percent.
GET is a prepaid college tuition plan whose customer base is parents and grandparents. The program works on a unit system, where 100 units represent one year of tuition. The unit cost is based on prices in effect when purchased. The committee calculates the unit cost based on the highest-priced Washington public university.
For example, if someone purchased 100 GET units at $35 per unit when the program began in 1998, they would be paying $3,500 for a year at Washington State University, as opposed to the tuition cost of $9,886 per year now.
Last year’s enrollment cost $117 per unit, meaning one year would cost $11,700. The new price per unit is $163, meaning a year would cost $16,300, an increase of nearly 40 percent.
“We’ll see over the coming months how much it affects families opening new accounts or buying more units,” said Susan Martensen, marketing and communications manager for GET. “It’s widely understood that college tuition is going to rise rapidly over the next few years, and parents will be looking at GET as a way to save for these future costs in a safe environment.”
The GET committee was advised by a legislative committee, which met Wednesday. However, they could not come to a consensus on recommendations for GET.
Ed Orcutt, 18th District state representative, was among the dissenters for raising prices.
“Ultimately I think the Legislature created this problem by giving tuition-setting authority to the universities. You go from $117 to $163 per unit in one fell swoop? This is going to double in about five years at this rate. It’s way too aggressive,” said Orcutt, R-Kalama.
The advisory committee was created this year by the Legislature in response to the Higher Education Opportunity Act, which allowed universities to set their own tuition rates. The act resulted in a 20 percent tuition increase at the University of Washington and a 16 percent increase at Washington State University, threatening the future solvency of the GET program.
Fifteen thousand new accounts were opened during the enrollment period following the passage of the Higher Education Opportunity Act, according to Don Bennett, chair of the GET committee and executive director of the Higher Education Coordinating Board. The average number of new annual accounts is about 10,000, according to GET Program Director Betty Lochner.
The rush to join the GET program was most likely a result of parents fearing tuition increases with the power in the hands of the university.
“The universities all said they were going to be very careful with how they used this, and what does the University of Washington do? Twenty percent (increase). That’s not what I consider careful,” Orcutt said.
According to state Actuary Matt Smith, the committee was expecting tuition increases around 7 percent.
“We’re going to see tuition two to three times more than that in the short term, so originally they didn’t charge enough,” Smith said. “Because they’ve already sold quite a few contracts they have an unfunded liability associated with them.”
That unfunded liability totals $688 million, Smith said.
It is because of this liability that future investors will have to pay a higher premium, gradually paying off the debt and accounting for future costs, such as above-expected tuition growth.
“You’re balancing risk with affordability. How do you keep risk (for the state) relatively low but still have a program that’s affordable to citizens?” Smith said.
The state actuary’s office recommended re-pricing units for the current program instead of closing enrollment to new participants, starting a new program with a different payout value, or terminating the program entirely.
Washington is one of only five states with a prepaid plan guaranteed by state law, according to Martensen. Meaning if the entire program became insolvent, the state would be on the hook for $2.3 billion, Smith said.
According to Smith, re-pricing units to gradually pay off the debt over 30 years was the most effective solution because it kept the risk to the state low, at 1.1 percent, while keeping the expected number of units sold high, at more than 988,000 per year.