Md. prepaid tuition cost to rise 10%

Board-approved increase is smallest in three years

Tuition inflation might be easing

September 24, 2004|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

The cost of signing up for a Maryland prepaid college tuition contract this year will go up about 10 percent, far less than in the past two years, a sign that tuition inflation may be ebbing.

The board of the College Savings Plans of Maryland approved new contract prices yesterday for the prepaid plan that begins enrollment Nov. 15. Depending on a child's age and other factors, the price increases range from 10.1 percent to 10.8 percent, said Joan Marshall, executive director of the program.

That's far tamer than the increases of the past two years, when tuition skyrocketed at Maryland's public colleges. Contracts went up as much as 27 percent last year and 30 percent the year before. That caused state legislators to worry that some Maryland families might be priced out of the prepaid plan, which allows parents or grandparents to essentially lock in a child's future education costs by paying tuition and fees in advance through a lump sum, annual installments or a combination of both.

Tuition rates for the 2005-2006 academic year at Maryland's public colleges won't be set until next month, but the prepaid plan projects that costs will rise by 10 percent, Marshall said. Thereafter, tuition increases are expected to be in the single digits, she added.

"It's the best projection we have when you weigh the cost of the university, the ability of the state to support public colleges as well as improving economic conditions," Marshall said.

The price of a prepaid tuition contract is largely determined by the child's age, expected investment returns and tuition forecasts at Maryland's public colleges. The money also can be applied to private or out-of-state schools.

For the coming enrollment period, the lump-sum price to buy four years of college for a child who is an infant today will be $34,347, a 10.1 percent increase over the last year, Marshall said.

The steepest increase is in the cost of two years at a community college for a child who is an infant today. The lump-sum cost rose to $7,138, a 10.8 percent jump, Marshall said.

Other states are also experiencing more modest increases in their prepaid contracts than in the past few years, said Joseph Hurley, founder of Savingforcollege.com, an information resource on tuition plans. "Several of those states' public tuition has slowed down," he said.

Prepaid plans also are benefiting from better investment returns after last year's strong stock market gains, he added.

Rising tuition and the downturn in the stock market a few years ago took a toll on prepaid tuition plans, many of which saw their surpluses turn to deficits.

Some states, dealing with budget problems, also worried about being able to keep their pledges to honor prepaid tuition contracts, particularly as more parents enrolled in plans to gain control of rising education costs.

Two years ago, Colorado shut down its plan, although it's still honoring its contracts, said Chris Hunter, program manager for the College Savings Plans Network, an association for state-sponsored tuition plans. Ohio, Texas and West Virginia last year suspended new enrollment. Kentucky, too, had suspended enrollment, but reopened the plan a month ago after making some changes to the program, Hunter said.

Last year, Maryland reported an "actuarial" deficit of $70 million, meaning that the plan is $70 million short of meeting future obligations based on the projected value of assets and liabilities. Plan officials told legislators early this year that the program is expected to remain solvent through 2020.

Maryland's prepaid plan has 22,000 accounts, and plan officials expect 3,500 accounts to be opened during the coming enrollment period.

The program has added features to attract participants. For example, participants will be able to prepay for a single semester rather than having to buy at least a full year, Marshall said.

That's designed for grandparents who want to buy a gift for a child or for families who can't afford to buy years of school at this time, she said. One semester at a four-year college for a child that is now an infant will cost a lump sum of $4,367, or $42 a month for 204 months.

The prepaid plan also will be open to students who are high school sophomores, juniors and seniors, in response to parent demand, Marshall said. Previously, the cutoff was ninth grade. But students can't withdraw money for college for three years, so a high school sophomore won't be able to tap the prepaid plan until after the freshman year of college.

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