Prepaid college tuition program begins second enrollment drive

Poor results last year blamed on late start

February 12, 1999|By Michael Hill | Michael Hill,SUN STAFF

The Maryland Prepaid Tuition plan kicked off its second enrollment period yesterday, hoping to recover from last year's stumbling start.

The program, which allows parents to pay in advance -- basically at current levels -- for their children's tuition and fees at colleges and universities, signed up 1,100 participants last year. The goal was 10,000.

Program administrators think that goal will be reached by this year's cutoff June 10. They blame a late start and a confusing message for last year's poor results.

"We couldn't really begin marketing until the governor signed the tax bill on April 15," said Edwin S. Crawford, chairman of the trust that administers the plan. "You are asking people to invest a lot of money. That's not a decision people want to make in a hurry."

Crawford said one message that didn't get out is that the money does not have to be used at state schools, but can be used at any college in the country, public or private.

The program was supposed to be paying its own way by now, but the lack of participants means that it will need $500,000 from the state this year.

At yesterday's kickoff in the State House, Crawford displayed a chart that he said the program lacked last year. It showed that, with tax advantages, an investment in the prepaid trust earns the equivalent of a 10 percent to 13 percent return on taxable investments. That assumes a 5 percent annual increase in tuition and 10 percent in fees.

Plan participants can deduct up to $2,500 a year from their state income tax. Federal regulations tax the earnings on the plan at the level of the student receiving the tuition payments.

Some question whether such plans are a good investment, especially when mutual funds are yielding 20 percent or more annually.

"If you just want to budget future college expenses in an affordable way, then prepaid plans make some sense," said Joseph P. Hurley, an accountant from Rochester, N.Y., who has just published a book -- "The Best Way to Save for College" -- that rates such plans.

"But after you've gotten the $2,500 tax break, it's not clear what sort of return you're getting," said Hurley.

Crawford acknowledged that the plan is not designed to bring in maximum benefits. "If you want to take a chance on the stock market, then maybe you can do better," he said. "But if you want to sleep at night and know that your child's college is paid for, then our program is an excellent vehicle."

Program payments range from a lump sum of about $17,000 for four years at a state college to 18 years of $36 monthly payments for a two-year community college bill.

"That's less than my cable bill," Crawford said, adding that a main target of the program is people who are not investing any money for these expenses. "The point is to get people to save for college who otherwise would not do that."

Information is available on the Internet at www.prepaid.usmd.edu or toll-free at 888-463-4723.

Pub Date: 2/12/99

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