Trouble for taxpayers in prepaid tuition plan

Few sign up: Officials seek state guarantee and ongoing subsidy that could cost taxpayers millions.

November 06, 1999

FOR a plan that was supposed to be self-sustaining, Maryland's prepaid college tuition program is getting awfully costly for state taxpayers.

Only 3,600 people have signed up in the two years of the prepaid tuition plan -- one-fifth of what was projected. Now officials want the state to bail out the program with $1.8 million, bringing the state's subsidy to $5 million -- and counting.

Poor marketing and overly optimistic forecasts have hurt the program. Failure to farm out promotional and administrative chores also proved a mistake.

When the plan was presented to the General Assembly, it was billed as a no-cost way for state taxpayers to help folks save for their children's college tuitions.

The program guarantees the full cost of tuition at a Maryland public college -- or an equivalent amount toward tuition at a college elsewhere.

But because Maryland ranks No. 3 in the number of students who attend out-of-state colleges -- where expenses often dwarf tuition at Maryland public colleges -- the prepaid tuition program hasn't proved very popular here.

Now officials want more state subsidies and a state guarantee on all tuition payments. Even this might not fix the problem, but it could leave taxpayers with a hefty bill to pay in future years.

A better approach, in line with most other states, would be a college savings plan. One proposal by Del. Mark K. Shriver of Montgomery County would let parents or relatives put up to $2,500 a year -- free of state taxes -- into an account. A money-management firm would make investments.

Given the high rate of stock-market returns these days, a college savings plan might generate far more money than a plan tied to the cost of future tuition. Participants could vary the size of their contributions each year.

For those seeking to lock in future college payments, a prepaid tuition plan might work best. But the program needs an overhaul. At the same time, parents should be given a second option -- a college savings plan that does not put taxpayers at risk.

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