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Our sorry state

Monday, Apr 29, 2019

* Fred Giertz, who’s with the Institute of Government and Public Affairs at the University of Illinois, penned a recent op-ed on the all-too-predictable downfall of College Illinois, the state’s prepaid college tuition program

Unfortunately, the program was seriously flawed from the very beginning. The program was predicated on a number of highly questionable assumptions that should have been addressed at the onset.

The following is excerpted from an Institute of Government and Public Affairs report that I co-authored March 7, 1997. It was released and presented in testimony to the Illinois General Assembly when the prepaid tuition plan was being drafted:

“Prepaid tuition plans are very similar to defined benefit pension plans. If they are well planned and well administered, there is no particular reason why they should fail. There is one additional complication, however, in comparison to pension plans. Pension plans are based on various actuarial assumptions about future life expectancy, inflation rates, rates of return, etc. With prepaid tuition plans, there is an additional factor in that it is necessary to project future tuition costs. At public institutions, these costs are based on political, as well as economic, factors since the increase in tuition costs results not only from inflation, but also from changing levels of state support. As with public pension plans, there are obviously political incentives that may result in underfunding. It may be attractive politically to offer unreasonably low prices for prepaid tuition knowing that these costs will come due far in the future.

“… Many of the objections to early proposals were based on their wildly optimistic estimates of investment returns and tuition inflation rates that left the state bearing an unreasonable degree of risk which, in turn, might be passed on to the universities.”

These cautions raised in the report became a virtual roadmap leading to the current problems. Tuition growth rates were consistently underestimated because of diminishing levels of state support that led to increases that far outpaced inflation. These past underfunding problems cannot be addressed now by raising the costs for new entrants in the program. Since participation is voluntary, new buyers cannot be expected to pay to reduce the unfunded liability associated with earlier enrollees.

* A legislative fix is underway. From the status of Amendment 1 to SB2137

Provides for an irrevocable and continuing appropriation from the General Revenue Fund to the Illinois Student Assistance Commission if moneys in the Illinois Prepaid Tuition Trust Fund are insufficient to cover contractual obligations

The amendment passed the Higher Education Committee on a unanimous roll call. The committee later adopted a second amendment to stop any new prepaid contracts as soon as the bill becomes law. The bill’s 3rd Reading deadline was also extended to May 2nd.

* Some recent history…

* College Illinois bailout now tops $500 million - Permanently halting the college-savings program and honoring existing contracts will end up costing taxpayers more than $6,800 for every student who has gone or will go to college using it.

* It’s time to put College Illinois to pasture for good

- Posted by Rich Miller        

  1. - 47th Ward - Monday, Apr 29, 19 @ 10:02 am:

    Nobody could have foreseen that this program was headed for disaster…oh, wait. Nevermind.

    What we need now is a time machine and the sense to listen to 1997 Fred Giertz. Unfortunately all we have is 2019 Fred Giertz saying he told us so, which while interesting and good for him, doesn’t really help the situation.

  2. - Annonin' - Monday, Apr 29, 19 @ 10:09 am:

    Right. Nobody expected colleges, which spend like and make drunken sailors seem chintzy, to outrun investment returns.
    Of course the colleges were not helped by the bill that froze tuition for freshmen.
    Seems like a failure that can be broadly shared. And for about 35,000 families it has been great.

  3. - Lucky Pierre - Monday, Apr 29, 19 @ 10:12 am:

    Trust us with another permanent income tax hike and the largest budget in Illinois state history, with zero reform of state government or the cost drivers of another unconstitutional, unbalanced budget.

    Also, pay not attention to shorting the pensions 900 million dollars.

  4. - Chicagonk - Monday, Apr 29, 19 @ 10:16 am:

    Another proud Jim Edgar accomplishment.

  5. - Pick a Name - Monday, Apr 29, 19 @ 10:19 am:

    And now the state of Illinois wants to help refinance current student loans—what could go wrong??

  6. - lakeside - Monday, Apr 29, 19 @ 10:32 am:

    I feel like our leaders from the mid to late-1990s are pretty lucky that Rod came along and claimed a lot of the scrutiny and rage we’d otherwise be sending their direction.

  7. - NoGifts - Monday, Apr 29, 19 @ 10:36 am:

    I am grateful my financial adviser recommended a regular 529 college savings account.

  8. - City Zen - Monday, Apr 29, 19 @ 10:45 am:

    The problem wasn’t funding, it was punctuation.

    College Illinois(exclamation point) should have been branded College, Illinois?

  9. - Adm Stockd'le - Monday, Apr 29, 19 @ 11:12 am:

    Appears the critics are arguing against themselves via hindsight:
    1. Universities wanted College Illinois as an additional revenue stream for the future (that they apparently outpaced already).
    2. Universities now also want reimbursement for Veterans Grants that were originally baked in.
    3. and now we’re additionally supposed to all buy off on free tuition and student loan bailouts for all -to the benefit of Universities getting paid?
    4. IL Universities subject to scandal in self-dealing hirings
    5. The Hollywood admissions scandal was obtuse compared to the covert list of applicants pushed by IL state officials…

  10. - anon2 - Monday, Apr 29, 19 @ 11:24 am:

    Was Edgar the driving force behind this program? Who were the chief sponsors who ignored the Gertz warnings?

  11. - Fav Human - Monday, Apr 29, 19 @ 11:26 am:

    Almost like a Ponzi scheme. If you got an early as I did it was great. If you didn’t it’s a disaster. And there’s a big Bill at the end with nobody to pay..

  12. - Nonbeleiver - Monday, Apr 29, 19 @ 11:43 am:

    Oh well, Bernie Sanders wants to make it all college expenses ‘FREE.”

  13. - Downstate - Monday, Apr 29, 19 @ 11:48 am:

    —The Hollywood admissions scandal was obtuse compared to the covert list of applicants pushed by IL state officials…—–

    That bears repeating. The nation is outraged over the admissions scandal, and it’s likely that people will go to jail. But the state stubbornly refused to tell us which state politicos were using their “influence” to upend the admissions system.

    It’s time we knew.

  14. - anon2 - Monday, Apr 29, 19 @ 11:51 am:

    The Trib editorial April 26 on “the College Illinois debacle,” names former Rep. Dan Burke as “the prime mover” behind the bill, which had the support of Speaker Madigan who provided it “meaningful mojo” per the editors. Gov. Edgar signed it, though he had previously vetoed a similar bill supported by Pat Quinn.

  15. - Quiet Sage - Monday, Apr 29, 19 @ 12:32 pm:

    At the time College Illinois began in 1997, the cost for full tuition reimbursement of 120 credits at any Illinois public college or university was $14,800. This works out to yearly tuition of $3,700 per year. During the past 20+ years that the program has been in effect, tuition costs have approximately quintupled. This has been a period of generally low inflation in the economy. While there are other important factors, it is this near-hyper inflation of college costs that is the primary reason for College Illinois’ undoing.

  16. - 47th Ward - Monday, Apr 29, 19 @ 12:39 pm:

    ===While there are other important factors,===

    Yeah, like the state cutting its operating subsidy each year since 2003 forcing huge tuition hikes. The state shifted the cost of college from the taxpayers to the students. Decisions have consequences.

  17. - Generic Drone - Monday, Apr 29, 19 @ 1:00 pm:

    Political factors have real consequences, it seems. In Illinois, that’s to the 10th power.

  18. - Pick a Name - Monday, Apr 29, 19 @ 1:28 pm:

    While Blago froze tuition for four years(if you stayed at one school, if you transferred from one state university to another, no deal)they generally upped tuition about 8% a year.

    So, someone who began school 4-5 years after the start of the tuition freeze faced tuition costs of 30-40% more.

  19. - Sue - Monday, Apr 29, 19 @ 2:31 pm:

    The saying goes- I am from the govt and I am here to help.

  20. - A State Employee Guy - Monday, Apr 29, 19 @ 2:31 pm:

    I don’t know if unreliable support was as big a factor in all this as Giertz claims. Whether the state provides support or not, the feds provide student loans for the cost of attendance. When universities saw that they could make up pretty much any tuition number they wanted, and the feds would still loan students that amount, guess what they did?

  21. - Quiet Sage - Monday, Apr 29, 19 @ 2:38 pm:

    To 47th Ward at 12:39 PM–Tuition has risen astronomically throughout the country at private as well as public institutions of higher education. Where the big difference comes is in the amount of the increase. In-state tuition at U. of I. Urbana-Champaign approaches $10,000 a year more than in-state tuition at surrounding flagship state public universities. College Illinois would have been in trouble in any event, but lack of state university subsidies certainly hastened its demise.

  22. - MyTwoCents - Monday, Apr 29, 19 @ 5:24 pm:

    Some numbers to put this discussion in perspective. At UIUC for Fall 04 (oldest on their website) $6,460/semester. For Fall 18 $12,036. So in 14 years undergrad tuition has increased by 86%.

    UIS goes back to Fall 02 when it was $109.50/credit hour. Now (fall 18) for undergrads it’s $313.50/credit hour. So in less than 20 years the tuition at UIS has increased by 186%.

    Reasons for the increase in tuition aside, there is nothing that could keep up with that rate of inflation and I don’t think anybody 20 years ago could have predicted the dramatic increase in tuition rates over a relatively short amount of time.

  23. - NoGifts - Tuesday, Apr 30, 19 @ 7:02 am:

    It’s an education bubble like the housing bubble. When lenders see how profitable it is to lend to students, they are willing to lend a lot. When universities see that students are able to borrow a lot, they feel free to raise tuition. Only the student loan bubble can’t pop because there’s no bankruptcy or foreclosure.

Sorry, comments for this post are now closed.

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