Illinois' prepaid tuition plan struggles as college costs soar
If you put your money into the College Illinois Prepaid Tuition Program to lock in tuition for your children in order "to gain some protection from inflation you may be screwed", according to an Associated Press story. ("Screwed" is how I describe it. The AP is a lot, a lot, less honest.)
The AP story was based on an investigation by Crain Investment at Chicago Business that found that Illinois was the worst-funded of 12 state prepaid tuition programs.
It isn't just the decline in the financial markets. Since its inception in 1999, Illinois' prepaid plan has earned a little over 3% on average. Even the runup to the market problems, the Illinois tuition plan was 7% underfunded.
The major problem is that no matter how well the plans perform, they cannot outpace the tuition hikes - "Public universities over the past decade have jacked up tuition at an average of 5.6 percentage points over the inflation rate." Which is why Texas closed their pre-paid plan in 2003 and their new plan requires the the state's public universities to honor pre-sold tuition at whatever price the participants paid. They did this to rein in tuition hikes which rose 13% in 2002-03, 13% in 2003-04 and 18% in 2004-05.
In Texas, Governor Perry has proposed $10,000 bachelor degrees. Sen. Dan Patrick, R-Houston, believes tuition at four-year universities is too high, budgets are too big and said they have lost sight of the main mission to teach and prepare students for a career. Perry called for a freeze on college tuition costs and a funding incentive plan that would award colleges and universities on the number of students who graduate, not just enroll.
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