E-mail
Print
Maryland's prepaid college plan ended its fiscal year with a $52.4 million actuarial deficit, but the plan's financial outlook improved in the past six months with the help of a tuition freeze and stronger stock market returns.
At the end of June, the plan had $445 million in invested assets and enough money to cover projected obligations for the next 16 years, said Joan Marshall, executive director of the College Savings Plans of Maryland, which oversees the prepaid plan. A year earlier, the plan had assets of $533 million and a $58.9 million surplus.
"This is reasonably good news since we've come through one of the worst markets since the Great Depression," Marshall said.
The Maryland Prepaid College Trust allows families to lock in the cost of college by paying in advance at a price based on today's tuition and fees. Money is pooled and invested, and the plan pays tuition and fees when the student enters college. The plan has 27,203 beneficiaries, with 7,086 now eligible to draw on their benefits. Open enrollment starts Dec. 1, and the price of new contracts will be going up less than 2 percent from a year ago.
Each year, the plan takes a snapshot of the projected value of the assets against anticipated obligations. Since the prepaid plan launched in 1998, it has operated with actuarial deficits and surpluses. The swings can be dramatic. For instance, the plan had a $75 million deficit in 2004, and two years later posted a $16 million surplus.
Investment returns and tuition increases largely determine an actuarial surplus or deficit, Marshall said.
The plan for the year ended June 30 lost 20.4 percent on its investments, compared with a 5.8 percent loss the year before.
Maryland's plan invests 60 percent of its money in stocks, 35 percent in fixed-income bonds and 5 percent in real estate. After last year's market crash, plan officials took a look mid-fiscal year to see the impact on the prepaid trust. The surplus had been wiped out by the end of December, and the deficit had ballooned to nearly $83 million.
The stock market, which appears to have hit bottom in early March, has regained some ground, which helped cut about $30 million off the projected deficit. The plan had the resources to meet 92 percent of its future obligations as of the end of June, compared with 87 percent in December, Marshall said.
"It looks like it's going in the right direction now after going in the wrong direction," said Joseph Hurley, founder of Savingforcollege.com.
About a dozen states have prepaid plans, and some have struggled.
"History shows that families that got into these plans are almost unanimously happy they did so because tuition has skyrocketed. These plans have done whatever they could to meet their obligation," Hurley said. "Nobody has lost money."
Prepaid plans are best suited for very young children who face more years of potentially steep tuition increases, Hurley said. Parents thinking of investing in the prepaid plan need to understand the rules.
"In theory, you need to recognize whatever sort of intrinsic risk exists in the plan. And if the plan runs out of money, what happens?" Hurley said. "Different states have different approaches."
Some states promise to fully cover any shortfall. Maryland's plan comes with a legislative guarantee, which means the governor must include any shortfall in the budget. Maryland legislators still have final say on approving the money.
While no state has walked away from its prepaid plan obligations, some have changed the rules.
Colorado gave participants several years ago a chance to cash out or stick with the plan under less generous terms, Hurley said. And Texas recently tightened the rules on a liberal refund policy, he said.
Families can sign up for the plan during an open enrollment that runs from Dec. 1 through April 5. The price is based on tuition and fees at Maryland public institutions. A tuition freeze this academic year at Maryland's four-year public institutions will keep the price increase of new contracts under 2 percent, Marshall said.
For instance, to buy four years at a Maryland university for an infant will cost a lump sum of $37,445, a 1.2 percent increase over last year. Two years at a community college for an infant will total $7,663, up 1.8 percent. Families can spread the cost out using one of the various payment plans, or opt to buy fewer semesters of schooling.
At the end of June, the plan had $445 million in invested assets and enough money to cover projected obligations for the next 16 years, said Joan Marshall, executive director of the College Savings Plans of Maryland, which oversees the prepaid plan. A year earlier, the plan had assets of $533 million and a $58.9 million surplus.
"This is reasonably good news since we've come through one of the worst markets since the Great Depression," Marshall said.
The Maryland Prepaid College Trust allows families to lock in the cost of college by paying in advance at a price based on today's tuition and fees. Money is pooled and invested, and the plan pays tuition and fees when the student enters college. The plan has 27,203 beneficiaries, with 7,086 now eligible to draw on their benefits. Open enrollment starts Dec. 1, and the price of new contracts will be going up less than 2 percent from a year ago.
Each year, the plan takes a snapshot of the projected value of the assets against anticipated obligations. Since the prepaid plan launched in 1998, it has operated with actuarial deficits and surpluses. The swings can be dramatic. For instance, the plan had a $75 million deficit in 2004, and two years later posted a $16 million surplus.
Investment returns and tuition increases largely determine an actuarial surplus or deficit, Marshall said.
The plan for the year ended June 30 lost 20.4 percent on its investments, compared with a 5.8 percent loss the year before.
Maryland's plan invests 60 percent of its money in stocks, 35 percent in fixed-income bonds and 5 percent in real estate. After last year's market crash, plan officials took a look mid-fiscal year to see the impact on the prepaid trust. The surplus had been wiped out by the end of December, and the deficit had ballooned to nearly $83 million.
The stock market, which appears to have hit bottom in early March, has regained some ground, which helped cut about $30 million off the projected deficit. The plan had the resources to meet 92 percent of its future obligations as of the end of June, compared with 87 percent in December, Marshall said.
"It looks like it's going in the right direction now after going in the wrong direction," said Joseph Hurley, founder of Savingforcollege.com.
About a dozen states have prepaid plans, and some have struggled.
"History shows that families that got into these plans are almost unanimously happy they did so because tuition has skyrocketed. These plans have done whatever they could to meet their obligation," Hurley said. "Nobody has lost money."
Prepaid plans are best suited for very young children who face more years of potentially steep tuition increases, Hurley said. Parents thinking of investing in the prepaid plan need to understand the rules.
"In theory, you need to recognize whatever sort of intrinsic risk exists in the plan. And if the plan runs out of money, what happens?" Hurley said. "Different states have different approaches."
Some states promise to fully cover any shortfall. Maryland's plan comes with a legislative guarantee, which means the governor must include any shortfall in the budget. Maryland legislators still have final say on approving the money.
While no state has walked away from its prepaid plan obligations, some have changed the rules.
Colorado gave participants several years ago a chance to cash out or stick with the plan under less generous terms, Hurley said. And Texas recently tightened the rules on a liberal refund policy, he said.
Families can sign up for the plan during an open enrollment that runs from Dec. 1 through April 5. The price is based on tuition and fees at Maryland public institutions. A tuition freeze this academic year at Maryland's four-year public institutions will keep the price increase of new contracts under 2 percent, Marshall said.
For instance, to buy four years at a Maryland university for an infant will cost a lump sum of $37,445, a 1.2 percent increase over last year. Two years at a community college for an infant will total $7,663, up 1.8 percent. Families can spread the cost out using one of the various payment plans, or opt to buy fewer semesters of schooling.
Digg
Twitter
Facebook
StumbleUpon
These are investments and people should be aware that there are risks involved, but the strong comments of the previous user seems harsh. Saving for college is a positive thing when studies show that 60% of college costs are paid for by student loans. Know the risks and read the disclosure statement, but determine if you could do better investing on your own. The odds are when the market takes an average 38% drop, you can't.
finaid333 (10/29/2009, 11:10 PM )