* 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