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State Ups Prepaid Tuition Plan's Cost

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By ADAM EMERSON The Tampa Tribune

Published: October 14, 2007

Rates for Florida's popular college savings plan are going up as much as 15 percent this year, the largest such increase since 2003.

The new rates go into effect today, the first day of enrollment for the Florida Prepaid College Plan. Under the plan, parents plan as early as the birth of a child to lock in the cost of tuition to state schools.

Although options vary, the parents of a newborn wanting to buy a four-year tuition plan in one lump sum must pay $13,516. The same contract last year cost $11,717.

In recent years, rates for newborns have increased between 6.5 percent and 8 percent, but market changes have led to higher costs for families.

In past years, the Florida Prepaid College Board, charged with investing payments, earned more money on its assets, which kept rate increases lower for families, said Tom Wallace, the board's executive director.

This year, however, interest rates on the board's investments are lower. As a result, families wanting to lock in future college costs are paying more.

And if tuition rises much in the future, as many education leaders are pushing for, rates may climb further in the years to come.

Despite the price increase, the plan's proponents say the offer is a bargain. That $13,516 lump-sum payment for a newborn is guaranteed, regardless of future tuition increases or downturns in the economy.

Plans and prices vary depending on a child's age. The cost increases if not made in one payment. Monthly payments on a four-year tuition plan for the same newborn will be $93.12 starting today, and parents make those payments until their child enters college. Families also can elect to spread the plan over five years and pay $271.92 a month for 55 months.

Plans are available to cover future costs of community college tuition, local fees and dormitories.

Families have bought more than 1.2 million plans since they were first offered in 1988. Although it remains the largest prepaid college plan in the nation, the number of plans sold last year decreased 10 percent from the previous year to just fewer than 80,000.

Slowing population growth is responsible for some of that decline, Wallace said.

Sean Snaith, an economics professor at the University of Central Florida in Orlando, said a shaky economy may be leading some to put off making the investment.

"There's more uncertainty right now regarding the economy than there has been for a few years," said Snaith, director of UCF's Institute for Economic Competitiveness.

In addition, Snaith said, more people may be souring on investing in a Florida higher education. University presidents decry the lack of funding they get from the state, and warn of mediocrity if they don't get more money.

That message is reaching families, Snaith said. "I know I'm thinking about it, and I assume I'm not the only one," he said, adding he has children ages 5 and 2 and hasn't bought a prepaid plan.

The plans are priced on the assumption tuition will rise about 6.5 percent annually, Wallace said. University presidents have long called for greater increases, however.

Tuition and fees run about $3,300 annually at Florida's 11 public universities. Leaders of the state university system say they want to reach the national average, about $5,840, within three years, which would mean an annual increase of about 25 percent. And those leaders are suing the Legislature to settle who has the authority to raise tuition.

If tuition increases substantially in the coming years, and stays higher, that will negatively affect the Prepaid College Board's trust fund, Wallace said.

The board's trust fund had assets totaling $6.7 billion as of June 2006. Price increases for the prepaid plans are kept lower with more money in the trust.

Critics have said the plan's guarantee has made lawmakers reluctant to raise tuition more than a few percentage points each year. One education consultant who surveyed Florida's public universities found that the prepaid college plan, while fueled with "good intentions," posed "long-term challenges."

The consultant, Alceste Pappas, wrote that the prepaid plan, "coupled with the State's seeming pride in maintaining the lowest tuition rates for universities in the nation, will soon pose a significant threat to the state as burgeoning numbers of these eligible students attend Florida's community colleges and state universities."

PREPAID COLLEGE ENROLLMENT

Four-year university tuition plan

•Lump-sum payment: $13,516.27

•Five-year plan (55 monthly payments): $271.92 (Approximate total: $14,956)

•Monthly payment plan: $93.12 (payments are made until the child enters college) (Approximate total: $21,231)

Two-year community college tuition plan

•Lump-sum payment: $4,376.48

•Five-year plan (55 monthly payments): $88.05 (Approximate total: $4,842.75)

•Monthly payment plan: $30.15 (Approximate total: $6,874)

Enrollment in the Florida Prepaid College Plan begins today and runs through Jan. 31. Prices and plans vary depending on a child's age. Below are sample prices on plans purchased for a newborn. Families can sign up at www.florida529plans.com, or by calling 1-800-552-4723. Reporter Adam Emerson can be reached at (813) 259-8285 or aemerson@tampatrib.com. Enrollment in the Florida Prepaid College Plan begins today and runs through Jan. 31. Prices and plans vary depending on a child's age. Below are sample prices on plans purchased for a newborn. Families can sign up at www.florida529plans.com, or by calling 1-800-552-4723.

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