AUSTIN, Texas -- With three boys just a few years away from high school, Mauro Renteria and his wife, Betty, don't like to think about college. "By the time they are in their college years, there's no telling what the price of tuition will be," said Mr. Renteria, whose boys are aged 12, 10, and 8.
During the 1980s, tuition costs at public and private colleges in the United States increased by some 10 percent a year, nearly double the rate of inflation. For Mr. Renteria, a state worker, and his wife, a bank clerk, the idea of college for their children must be put off while they deal with more immediate expenses, like shoes, food and rent.
But a new bill introduced in the Texas Legislature last month could give moderate-income families like the Renterias a chance to send their children to college.
Called the guaranteed prepaid tuition plan, the program would allow Texas residents to purchase tuition contracts that would cover the cost of tuition at state universities regardless of how much tuition goes up during the intervening years.
The plan is modeled after one Florida launched in 1988. Now the biggest of its type in the country, the Florida Prepaid College Program currently has 327,000 contracts worth some $800 million.
For a newborn child, for instance, Mr. Montjoy said, Florida residents who participate would pay $47 per month into the program until the child reaches college age, according to William Montjoy, director of the Florida program. Upon entering college, the child's tuition would be paid in full for 120 credit hours of course work. "But if you wait until the child is in the 10th grade," Mont-joy said, "it will cost you $208 per month."
Since 1987, seven other states -- Alabama, Alaska, Massachusetts, Michigan, Ohio, Pennsylvania, and Wyoming -- have begun similar programs. According to the College Savings Plans Network, three more states -- Louisiana, Missouri, and Virginia -- have passed legislation and are now readying their programs.
Parents have embraced the prepaid tuition programs. The tax man, however, hasn't been so enthusiastic. For several years, the Internal Revenue Service has been in a court battle with the Michigan Education Trust, the state's prepaid tuition program.
The IRS wants to collect federal income tax on the 55,000 contracts in the trust, which are worth some $420 million. But last year, the U.S. Court of Appeals ruled that Michigan did not have to pay taxes on the money. The ruling will save the state about $8 million per year.
The decision heartened program managers in other states, who are still awaiting tax rulings from the IRS. Barbara Jennings, director of the Ohio Tuition Trust Authority, which manages 34,000 tuition contracts, said the federal government should be encouraging college savings plans, not discouraging them. "We have to do more to encourage the affordability of college," she said. "These programs increase the amount of savings, which is good for the whole country. We need tax relief for people who invest in savings programs like this."
For the Renterias, the tuition contract may be the only way they can send their children to college.