posted March 9, 1998

Hope Eyes Prepaid Tuition

Hope College is the first Michigan institution to join a growing coalition of private colleges and universities creating a prepaid tuition program designed to allow families to cover tomorrow's tuition at today's cost.

          Although still in the planning stages and awaiting
  final federal approval, the program would offer $1,000
  certificates that would pay a percentage of the future
  tuition at any of the colleges and universities
  participating in the consortium, named "Tuition Plan Inc."
  Families could even purchase enough certificates to cover
  100 percent of the cost of four years at any of the
  participating institutions.
          "With this plan, the certificates will purchase
  future tuition benefits at any of the participating
  institutions, and the decision as to what institution to
  attend does not have to be made until the student is of
  college age," said William K. Anderson, vice president for
  business and finance at Hope.  "There are presently 33
  colleges in the consortium and the number is growing
          "This program will be ideal for grandparents and
  others who may want to give the gift of education because
  they needn't wait until the child starts college," he said.
          The consortium began with a group of schools in
  the south and has since expanded nationwide.  Members so far
  range from DePauw University in Greencastle, Ind., to Emory
  University in Atlanta, Ga., to Rice University in Houston,
  Texas, to Vanderbilt University in Nashville, Tenn.
          According to Anderson, the advantage for families
  is that if the goal is to save for college tuition, they are
  likely to experience a higher "investment return" by
  participating in the program than investing in traditional
  investment plans.  The colleges and universities,
  conversely, are gambling that the earnings on the
  certificates will outpace future tuition increases because
  the funds will be invested by professional money managers
  similar to endowment investments.
          Although it's too early to guarantee specifics,
  according to Anderson the program would work something like
  this:  a $1,000 certificate purchased in 1999, for example,
  might be guaranteed to cover seven percent of a year's
  tuition at "College A" and 15 percent at "College X."
  Schools would commit in advance to the percentage of their
  costs to be covered by each certificate, thereby allowing
  families to know how many certificates they would need to
  buy to guarantee total tuition at any given school.
          "The per-share pricing method, with certificate
  maturity dates based on a child's age at the time of
  purchase, is key since private college tuition varies
  dramatically around the country," Anderson said.  "Initial
  consortium projections suggest that future guaranteed
  tuition, room and board could be purchased for an eight-
  year-old for about 75 percent of today's costs."
          Unlike many state-sponsored plans, which according
  to Anderson are more rigid in design and investment options,
  the private colleges' program would be transferable among
  schools in different states.
          Anderson noted that Congress needs to enact
  legislation that exempts families from taxation on the
  growth of their investment in private plans before the
  program can become a reality.  A bill has recently been
  introduced in the House that would exempt prepaid private
  tuition from federal income tax.  It is hoped that the
  program could be marketed to families by next year.