Tuition plan will seek Md. backing

Legislation calling for state guarantee to go before Assembly

November 23, 1999|By Michael Hill | Michael Hill,SUN STAFF

The Maryland Prepaid College Trust wants the state to stand behind the trust's promise that it will pay tuition costs of those who invest in its savings plan.

Legislation calling for a state guarantee -- to be introduced in the next session of the General Assembly -- is intended to attract more people to a plan that has failed to draw the anticipated numbers of investors.

"I think it will make a very significant difference in our marketing of the plan," said its executive director, Joan Marshall. "Maryland families have clearly told us, in our survey and in our meetings with them, that they would feel more comfortable if the state was standing behind the plan."

Plan proponents said they expected 10,000 people to sign up in the first year. After two years, 3,700 have signed contracts to make regular payments into the trust, which invests the money and pays children's tuition and fees at a state college or university -- or the same amount at any other school, in state or out.

When the plan was approved, state officials said it would take a constitutional amendment to put the full faith and credit of the state behind the plan. Without that, the state attorney general's office ruled, all literature promoting the plan should include warnings that no guarantee exists that the promised money will be there when children attend college.

"This is one of the things that has held up this program from being as much of a success as it has been in other states," said state Sen. Patrick J. Hogan, a Montgomery County Republican who sponsored the legislation establishing the trust in 1997.

Plan officials said a survey of those who received information about the plan but did not sign contracts showed about a third gave the lack of a guarantee as the main reason they did not participate.

The proposed legislation would fall short of the "full faith and credit" constitutional amendment, but would commit the legislature to making up any shortfalls.

"In a worst-case need, the money would be there," said Edwin Crawford, a Baltimore investment banker who is chairman of the board for the program.

Crawford -- who said that most other states with such programs back them more fully than Maryland does -- emphasized that the plan is on solid financial footing, with $20 million invested and another $50 million committed through contracts.

Under the proposed legislation, the state backing could fall through if the General Assembly fails to appropriate the money needed to cover a shortfall.

"I firmly believe that if there ever was a financial problem, future legislatures or governors will step up to the plate and honor, if not a statutory commitment, a moral commitment," Hogan said. "It only makes sense, because what we are doing is trying to get people to save for a college education because we want more people to have the ability to go to school."

The legislation will also ask for about $1 million in state funds to help market the plan next year. Hogan said he expects some opposition to this because the plan was supposed to be self-sufficient by now.

Crawford said the money would only be used for marketing -- primarily to pay for television ads -- not for operating expenses.

"If we don't get it, we will continue to sell the plan by word of mouth," he said. "But if they want more people to save money, and that was the intention of this plan, then we need those funds for marketing. Washington and Baltimore are expensive television markets."

Crawford said a sign-up period for the plan will last until the end of February, but television marketing money for the year has run out.

In addition, the legislation will call for setting up a college savings plan, a tax-exempt program similar to a 401(k) retirement fund, that will allow people to save any amount they want for school expenses, with the payout tied to the value of the investments, not to tuition costs.

"That was our plan from the beginning, to get the prepaid up and running and then come back with a savings plan," Crawford said. "You take care of tuition with the prepaid, but there are a lot of other costs -- room and board, books, incidentals -- that you can save for in the savings plan."

Hogan said one of the reasons the prepaid plan has not drawn the number of participants seen in other states is because it was set up during a soaring stock market that offered returns outstripping the benefits of the prepaid plan. With the plan's tax benefits, money placed in the trust earns about a 10 percent to 12 percent return a year.

"There is no guarantee that the market will always act like that," he said.

Crawford said another reason is that people in Maryland, unlike those in Virginia, Michigan and other states with similar plans, do not have a high opinion of their state schools.

"Marylanders do not have strong positive vibes for quality of their institutions the way people in Virginia do," he said. "And that's a shame because these schools have made tremendous strides."

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