Funding back on track for prepaid GET program
Washington’s prepaid college-tuition program is back on firm financial footing for now, the result of a decision earlier this year to freeze tuition at the state’s colleges and universities for two years.
Seattle Times higher education reporter
Washington’s college-tuition program is back on firm financial footing — at least for now — after a yearlong drama over its future and even a proposal, at one point, to close the program entirely.
The Guaranteed Education Tuition program, or GET, has been given an A rating for soundness from state actuary Matt Smith, and a committee that oversees the program voted Monday to keep the price of a unit of GET at $172, the same price as last year.
“We weathered a pretty big storm last year,” said GET executive director Betty Lochner. At one point last year, GET’s unfunded liability — the value of all units sold when compared to the market value of all of its assets — was $631 million. Today, according to Smith’s report, its unfunded liability is just $160 million.
The fund has found more solid financial ground because the Legislature voted earlier this year to freeze tuition at the state’s colleges and universities for two years. That means the payout value for each unit won’t change, allowing the fund to catch up as new investors buy in.
The fund lost value during the recession years, after lawmakers approved double-digit tuition increases several years in a row.
The fund’s payout value is tied to the cost of one year at the state’s most expensive four-year public university — in most years, that’s the University of Washington — and when tuition went up many times faster than GET’s managers anticipated, the program’s unfunded liability rose sharply.
The fund has also been hurt by swings in the stock market, especially during the recession. This year, GET’s one-year return is 9.59 percent, although it’s lost 2 percent during the current quarter.
“The big message is, the stock market is still volatile,” Lochner said.
The program, now in its 16th year, lets families buy tuition units at a set price and cash in those units at the going rate when their children go to college. The fund will open to new investors on Nov. 1.
“Our message will need to be that we are in a bit of a reprieve, and that’s great — but the reason you save for college is that tuition always goes up eventually,” Lochner said.
A new marketing campaign later this year will emphasize financial literacy and the value of GET in saving for college, “because nobody can really pay as you go anymore,” she said.
Because the state’s colleges and universities raised tuition steeply to counter state budget cutbacks, people who had invested in GET before 2008 did very well financially.
For example, a GET unit purchased in 2005 had doubled in value by 2012. But that also caused the unfunded liability to grow.
In January, a legislative committee studying the program recommended that GET be shut down to new contributions and eventually closed when the last of the account holders had been paid off.
But the fund’s overseers, including state Treasurer James McIntire, said they believed they had already reformed the program by raising unit prices and adding a $19-per-unit recovery fee to reduce the unfunded liability.
A number of other states that offer prepaid-tuition plans have closed their programs to new enrollments or changed the plans’ terms because tuition rates were growing too fast for the programs to keep up.
But Lochner said legislators eventually came around to supporting the program because it’s one of the few options available for middle-class families to save money for college.
“Legislators are starting to realize how important it is to Washington families,” she said. “They’re now going to protect this program.”
Under GET’s terms, the state guarantees that if tuition increases outstrip the amount of money available in the fund, the Legislature must cover the shortfall.
Smith, the state actuary, predicted in his report to the GET committee that “if all assumptions are realized and the program remains open,” GET will be fully funded by 2018.
Katherine Long: 206-464-2219 or firstname.lastname@example.org. On Twitter @katherinelong