THE MARYLAND Prepaid College Trust has gotten off to a less than stellar start. The program, which replicates those in several other states, including Virginia, allows parents to save money tax-free for their children's college education. In principle, the trust offers an attractive deal to parents. It's designed to effectively lock in current tuition rates for in-state public universities, providing both federal and Maryland tax benefits to those who participate. The money saved also can be used to partially pay for out-of-state and private institutions. What's more, the program is now also available to District of Columbia residents.
But the Maryland program has attracted far fewer participants than other states' programs--fewer than 4,000 children in its first two years. One problem that is surely contributing to the lackluster enrollment is that, unlike other state prepayment programs, Maryland does not guarantee that a benefit equivalent to college tuition at the time a child graduates from high school will actually be paid. If the investments the fund makes turn out to be bad ones, parents' money is not protected by the fact that the program is run by the state government. This ought to be fixed, and a bill that would obligate the governor to request money to cover any deficit is likely to be introduced in the coming legislative session. Such a guarantee has risks: If the stock market collapses, the state could end up stuck with a huge liability. At the same time, the current program lacks precisely the element of certainty that, in other states, is its most compelling draw.
Other states also have improved their programs with supplemental savings plans. These do not carry the same guarantee as the basic tuition savings plan, but they offer tax benefits for parents who want to put even more money aside--toward more expensive private college tuition, for example, or for expenses like room and board, which are not covered by the current program.
State tuition savings programs are not the ultimate answer to runaway tuition costs, but they are a pretty good palliative for those with the wisdom and resources to put money away. They encourage savings, and they haven't--in their first years, anyway--created deficits that taxpayers are forced to make up. Maryland's program should be given a chance to succeed.