Friday, January 18, 2013
Washington state’s Guaranteed Education Tuition program seemed to be a great way to help parents save for their children’s college costs when it began in 1998.
Essentially, parents (or grandparents, aunts and uncles) could pay for tuition equal to the amount being charged at state colleges and universities. As the price of tuition goes up, so does the value of the GET’s pre-paid tuition “units.”
In theory, families would buy a few “units” over time so that when kids were of college age a big chunk of their college costs were covered.
But theory and reality don’t always follow parallel tracks.
Over the last decade or so, college tuition has skyrocketed — going up at double-digit rates year after year. When the state penciled out the long-term financial picture for the program it figured on annual increases of 7 percent, not 14 percent.
As a result, the GET fund simply does not have enough assets to fund the tuition promises it sold. GET now has about $2 billion in assets and is underfunded by $631 million. That gap is projected to grow.
A growing number of state lawmakers, Republicans and Democrats, are calling for the state to close the GET program and cut its losses. Those who have already purchased units will be able to use them but no new money will be accepted.
That seems to be the prudent course.
We have been very supportive of the GET program, thinking — like legislators — it would help a lot of families plan for college. We now see that the program is not working as intended.
Not only is the state short on funding the program, but the cost of tuition today is so high at a time when the economy is in the tank that the middle-income families this program was aimed at cannot afford to buy GET units. Those with high incomes or substantial inheritance are more likely to take advantage of investing in GET.
The effort to close the GET program is spearheaded by Senate Majority Leader Rodney Tom, D-Medina.
Rep. Ed Orcutt, R-Kalama, originally opposed shutting down the program but now believes it should be done. Orcutt said he fears investors will eventually decide GET isn’t a good deal anymore. In addition to a rising price of tuition, the program now charges an additional $19 fee for each GET unit purchased as part of a plan to make the program solvent in about 20 years.
GET has unintentionally become like a pyramid scheme. The last ones putting money into the plans are paying off those who were first in line. Eventually, the number of investors won’t be able to cover the costs and the state will be out billions.
Washington state’s money problems are already large, it doesn’t need to take on more debt. The time has come to close the GET program.