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Virginia to Give Parents Option of Prepaying College TuitionBy Victoria Benning
Washington Post Staff Writer
Saturday, October 26, 1996; Page A01
Virginia officials have unveiled a plan allowing parents in the state to pay their children's college tuition years in advance, relieving some of the burden of rising college costs.
The prepaid tuition contracts will go on sale for 90 days beginning Dec. 2, with similar sign-up periods in future years, officials said.
Parents who buy a contract will make lump-sum or monthly payments into a tax-deferred account set up in their child's name. In return, they will be guaranteed that their investment will cover the full cost of tuition and fees at any public college or university in Virginia when their child reaches college age.
Virginia is joining 12 other states that have adopted college prepayment plans to address concerns about spiraling costs. An additional 20 states are considering the idea.
Maryland Gov. Parris N. Glendening (D) has said he intends to submit a tuition prepayment plan to the legislature when it convenes in January.
The Virginia program was approved by the state legislature in 1994, but it took more than two years for a state agency to complete the plan, which was announced this week.
The tuition contracts, available for ninth-graders and younger children, are not a guarantee of admission to any college. But the guarantee that the contract will cover the cost of tuition and fees at any two- or four-year public college in the state will remove parents' fears that they are not saving enough for their child's college education, officials said.
"This will relieve what is a major concern for a lot of parents," said Michael Mullen, deputy director of the Virginia State Council of Higher Education. "This is clearly encouraging parents and students to plan for college in advance. If they've got the financial side taken care of, they'll be encouraged to take care of the academic side as well."
For parents who make a single payment, the cost of a prepaid tuition contract at a four-year college ranges from $14,660 for an infant to $16,699 for a ninth-grader. For those who choose to make monthly payments from now until a child enrolls in college, the cost ranges from $128 a month for an infant to $482 a month for a ninth-grader. The fees are lower for contracts covering tuition at two-year community colleges.
A student who decides to attend a private college in Virginia or a public or private college outside the state still can make use of a prepaid tuition contract. But the student will have to pay any difference between that school's tuition and the highest tuition charged at a Virginia state college.
Parents can cancel a contract at any time and receive a refund of what they have paid into the program, although they will not receive interest.
With tuition and fees at Virginia's four-year public colleges now averaging about $16,000, the parents of an infant are getting a below-market price if they buy a tuition contract with a single payment of $14,660, state officials said.
One way to calculate the return on that investment is to consider how much tuition will cost in 18 years -- about $79,100, according to the projections of the Virginia Higher Education Tuition Trust Fund, which developed the plan.
Parents would receive about the same return by investing in a stock mutual fund that earned 10 percent a year but would not receive the tax advantages of the tuition plan. In Virginia's plan, taxes are deferred until a tuition voucher is redeemed and are based on the student's tax bracket, not the parents'.
Financial planners said programs such as Virginia's make sense for parents who don't have the time or savvy to manage their own investments.
"If a parent can lock themselves into a payment plan of this nature, it appears to me that it's probably a pretty good deal," said Arthur Einhorn, president of the Gaithersburg-based College Financial Aid Services.
But several financial planners said knowledgeable investors might do better on their own.
State officials said the program does not pretend to be an investment plan. "It's not an investment plan, it's an insurance program," said Diana F. Cantor, the trust fund's executive director. "It's an affordable way for families to realize their college dreams. It's a way of getting rid of some of the worry. It's not for everyone."
For more information about the program, parents can call a toll-free number, 1-888-567-0540.
© Copyright 1996 The Washington Post Company