College prepayment plan in red
Parents face uncertainty as state decides how to resolve shortfall

By Anna Simon
STAFF WRITER
asimon@greenvillenews.com

A South Carolina program that helps parents sock away money for their kids' college education while locking in tuition has a $41 million shortfall, according to the most recent figures from the state Treasurer's Office.

Soaring tuition hikes and sagging investments have put the Tuition Prepayment Program in jeopardy.

Faced with a taxpayer bailout or exacting tuition concessions from the state's universities, some suggest shutting it down.

Lamar Henderson, a Greenville financial planner, said he recommends other options to his clients because he believes tuition will continue to rise and parents can make other investments that are safer.

At issue is the $112 million families have poured into the 6,200 active accounts and the state's ability to pay their tuition bills even if the program gets closed to new families.

If it is discontinued, participants get their money back with 4 percent interest under the law creating the program.

State Sen. Gerald Malloy, D-Hartsville, wants to protect those already in the plan if it is ended but hopes to save it.

"Maybe we can find a solution so we can ensure the sustainability so that children and their parents can continue to have a method for paying for their children's education at our state-supported schools," Malloy said.

All this leaves families on the plan and those considering the plan with unanswered questions. The annual three-month enrollment period is now open.

"Clemson has a lot of students in the pipeline to use the program," said Marvin Carmichael, Clemson's director of financial aid. "Their families are depending on it. Obviously, they are concerned about the stability of the program."

The program's unfunded liability was $37.8 million as of June 30, 2005, at the end of the state's fiscal year, according to Paige Parsons, senior assistant state treasurer. By Dec. 31, at the end of the calendar year, that had grown to $41 million.

The program has sufficient funds to meet tuition contract benefits for all current subscribers only until 2016, assuming tuition increases at a rate of 9 percent annually and the program receives a 7.25 percent return on investment, Parsons said.

Tuition inflation was 11.7 percent in 2005, and the investment return was 6.17 percent, Parsons said.

The problem is that the program couldn't keep up with double-digit tuition increases in recent years, said Trav Robertson, a spokesman for state Treasurer Grady Patterson, a Democrat seeking re-election to an office he has held for more than three decades.

The program is one of the youngest of its type in the nation, and tuition at universities and colleges in the state has increased 114.6 percent since the inception of the plan seven years ago, Robertson said. An older, more mature plan could have better withstood the skyrocketing college costs, he said.

The program is administered by the state Treasurer's Office, and as such has become fodder in the campaign.

Sen. Greg Ryberg, an Aiken Republican running for treasurer, gives the plan a failing grade and says it's on "life support."

He's introduced a bill to close the program to new participants. The program would remain in operation for people already enrolled under Ryberg's proposal. The bill now is stalled on the Senate's contested calendar.

Ryberg's bill originally required that the state cover tuition for current enrollees if the plan ran out of money before their children entered college. However, his own amendment stripped that protection away to push the bill through the Finance Committee.

People would get back their money with 4 percent interest.

"Let's just stop the bleeding and then determine how we are going to fund or whether the state is going to fund the shortfall," Ryberg said. "But let's not keep it open and increase the shortfall."

Robertson said if the legislation passes, "It takes away one option for parents to save for their children's education."

Julie Peters of Clemson has two children headed for college. She considered South Carolina's plan but said the state's lack of support to its schools made her wary. She doesn't want to limit her children's choices if the quality of education at state institutions declines.

Parsons said families in the plan who choose to send their children to out-of-state colleges receive the equivalent of the average they would have received at South Carolina schools and can apply the money to other schools. That average tuition was $7,458 in 2005, $1,558 higher than prior estimates, according to Treasurer's Office information.

In-state tuition at Clemson is $8,816 for the current school year. At USC, in-state tuition is $6,914. Both figures reflected a 12 percent increase over 2004-2005. Tuition for the coming school year hasn't been set.

Ryberg objects to subsidizing students going out of state.

The "intent of the program is to keep the brightest young people in state," Ryberg said.

The Treasurer's Office recently presented a list of solutions to a Senate Finance subcommittee, but no action was taken, Robertson said.

One option is for the General Assembly to appropriate funds to make the program whole.

Another option is to ask universities to discount tuition for students in the program. Preliminary discussions with schools indicated they might consider this option, Robertson said.

Ryberg said that "makes no sense because other students in the class would be subsidizing that student."

A third option would be a combination of the two.

Two other options, doing nothing and charging higher premiums to make up for the shortfall, were considered impractical, Robertson said.

"We hear nothing but criticism from Sen. Ryberg. We don't hear anything about solutions to fix the problem," Robertson said.

The state also offers a Future Scholar plan that is a tax-advantaged savings plan. It is thriving and had a record-breaking $3.8 million day Monday as people took a last-minute tax deduction, bringing that fund to $671 million, Robertson said.