States are considering major changes in prepaid college tuition programs - raising prices,
restricting participation of canceling them - as they grapple with financial woes. Nationwide, families will likely have to pay more to participate, or accept that they might not cover tuition when children go to college.
Colorado has closed its prepaid plan to new investors and told existing ones that it may not cover future tuition increases. Wisconsin stopped selling its plan Dec. 20. Maryland and Illinois are among states hiking prices by 20% or more.
Prepaid plans let parents lock in tuition by paying for it now, protecting them against rising costs. But the hear market has hurt investment returns, leaving the plans unable to keep up with big increases in tuition. So far, Colorado is the only state that has told participants their investments may not cover tuition, and no plan has missed a payment.
Other states have said they will fulfill obligations, even if it requires a legislative bailout. Still, the financial problems have forced thousands to grapple with uncertainty - something prepaid plans were designed to avoid. More than 1 million families have an estimated $ 8 billion invested in the plans, says ＜ Saving for College. com ＞.
Some states, including Colorado, may replace the prepaid plan with a guaranteed investment contract, a CD-like investment that's backed by an insurance company. Investors get a minimum rate of return, but no guarantee that it will cover tuition.
Wisconsin's EdVest program is encouraging investment in a stable value fund, which is similar to a guaranteed investment contract, in its investment plan. Wisconsin's prepaid plan never guaranteed to cover tuition inflation. It also never got a lot of investors, possibly because it lacked that guarantee.
In Florida, a task force is considering limiting the state's prepaid program to low-income families. Ohio officials are also looking at limiting participation, but it's a measure they hope to avoid. "Program administrators are looking for alternatives," says Andrea Feirstein, a state-plan consultant.
Maryland recently boosted its prices by up to 30%; Illinois by up to 23%. The increases have made some prepaid plans uneconomical for parents of older children. In Ohio, the price of one year's tuition for a child over 12 months old is $ 8, 000, more than 40% above current tuition at Ohio State. SO it may not be a good deal for children starting college in three or four years because tuition may not jump that much that fast.
Prepaid college tuition is generally designed on the principle that ______.
A．it is easy to pay at the present time
B．it is economical in the long run
C．it saves pains to pass the entrance exam
D．it ensures the admission to the college
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