Participants in the Texas prepaid tuition plan, formerly the Texas Tomorrow Fund, have a tough choice to make. Faced with the program’s inadequate earnings, the tuition board voted in May to change the rules for people who decide to cancel their contracts.
The plan will still cover tuition and fees for students attending any Texas public university. But students who opt to attend a private or out-of-state university, or collect a sizable scholarship, will not receive any earnings on their initial investment.
The fund will return only the original fees. For some participants, the difference could amount to around $20,000, according to the Houston Chronicle.
Participants have until Nov. 30 to cash out of the plan and receive the value of their investments (the current average cost of a Texas public university).
The original plan allowed individuals to purchase college tuition for young children in advance, locking in current college rates. The plan then invested the money, and when the students were ready to attend college, their tuition was covered entirely. If students did not attend a Texas public university, they received the average amount that a current education at a Texas public institution costs. Now, those who remain in the plan risk forfeiting its benefits through no fault of their own.
Though the plan has benefitted many Texas families, it was based on little foresight and was flawed from the start. Since its conception in 1996, tuition has increased by 8.9 percent a year, while the plan’s return on investment has averaged 4.4 percent, according to the Austin American-Statesman. Then, in 2003, college tuition was deregulated, and since then, tuition and fees at Texas public universities have increased 86 percent on average.
Although the plan is in desperate straits — predicted to be insolvent by 2020, according to the Statesman — many question the legality and ethics of changing the rules halfway through the game.
Former State Comptroller John Sharp, who oversaw the program in its early stages, is one of the chief critics, calling for Attorney General Greg Abbott to review its legality. “You made an agreement with folks when they signed up for it,” Sharp told the Statesman. “It’s wrong to back out.”
Although Sharp may be more concerned about the way this change will affect his candidacy for Kay Bailey Hutchison’s U.S. Senate seat than the way it will affect families in the plan, he makes a valid point.
Participants in the plan trusted children’s education to the state. Now, if they don’t opt out, they will either be forced to choose within Texas public institutions or lose what they were told was a secure investment.
The Texas Guaranteed Tuition Plan’s Web site states, “The plan was not designed to serve as an investment vehicle.”
This incredible statement belies the purpose of a plan that relied on investment to grow money to cover college costs.
Had participants not been deceived into believing their investments would “guarantee” their benefactors’ college education costs, they may have invested through other avenues.
The state of Texas must back the contracts into which it initially entered. Though it may cost taxpayers, their representatives voted the plan into existence.
The plan was ill-conceived, and it failed. But Texas has not been reduced to the state of issuing IOUs or backing out of contracts.
If your child receives a full scholarship yes you can hold on to the TGTP funds for graduate school if you forsee your child being a longterm student or transfer to another qualifying family member.
If they receive a partial scholarship then TGTP will only reimburse you dollar per dollar you paid into the plan minus admin fees, not the actual current rate of tuition. And you are no longer elibible to transfer the plan to another family member. TGTP online assistance, clearly underlined in an email I received that the reimbursement rate change after 11/30 is less if partial scholarships are received.
So in looking into your crystal ball to determine your child's future: determine whether your child will get partial scholarship & if so, do you forsee they will be a longterm student? If your forsee partial scholarships but a longterm student, stay in the plan & let them use TGTF for graduate school. If you see partial scholarships & no longterm student, rolling over to a 529 plan before 11/30 deadline & being able to use the full benefits for your childs education may be a better option (room, board, books). The decision is different for everyone based on the length of time before your child graduates, high much higher tuition rates skyrocket & future unforseen plan changes.
I truly don't believe those who invested did so to reveice "windfall" profits. I think they are just parents who want their kids to receive higher education in a time when the government has made it nearly impossible to do without being in debt the rest of your life. Those who invested for windfall profits based on false pretenses of your childs future education may have character issues. And probably have not lost as much sleep trying to determine the best decision for their childs future education.
Don't get me wrong, I think the board did a terrible thing to us all. Plus they made their decision in May but didn't announce it until after the Legislature ended in August - smells fishy.