New enrollment in Maryland's prepaid college plan has fallen well short of expectations, possibly because of price increases and concerns about the plan's long-term health, officials said yesterday.
During the four-month enrollment period that ended March 18, the plan opened 2,319 new accounts, down from about 3,400 during the fourth-month open-enrollment period a year ago and far shy of plan administrators' goal of 3,500.
"Obviously, we are watching it with some concern," said Nancy K. Kopp, state treasurer and chairwoman of the plan's board.
The declining enrollment in Maryland's plan is occurring as "prepaid plans in many cases have enjoyed a resurgence as tuition at public [colleges] has gone up so steeply," said Joseph F. Hurley, founder of Savingforcollege.com.
Price increases in Maryland's plan are likely to blame, Hurley said. The price of prepaid contracts went up as much as 10.8 percent this enrollment period, after increases of as much as 27 percent and 30 percent in the two previous enrollment periods.
"It's still a lot less than if you waited until the child was ready to go to college," said Joan E. Marshall, executive director of the College Savings Plans of Maryland, which administers the prepaid plan.
The seven-year-old plan may also be feeling competition from the Maryland College Investment Plan, a newer program managed for the state by T. Rowe Price Associates, Hurley said.
Assets in the College Investment Plan reached $728.8 million at the end of February, more than double the $332.5 million in the prepaid plan.
The Maryland Prepaid College Trust allows families to lock in the price of future tuition and fees at Maryland public colleges by paying in advance. Money also can be withdrawn to use at private colleges or out-of-state schools.
The College Investment Plan works more like a 401(k), where families choose among a pre-selected group of investment portfolios, and the amount of money they end up with for college depends on the returns.
The enrollment numbers are preliminary and more accounts are likely to be opened, Kopp said. Parents with infants can enroll in the program at any time, and existing customers can buy additional years of tuition outside the open enrollment period. Because of this, the number of accounts last year ended up about 100 short of the 4,000 goal.
Kopp said enrollment might have been hurt by news of the plan's growing long-term deficit and publicity about problems with prepaid plans in other states.
Just before the start of open enrollment in November, the Maryland Prepaid plan announced that its actuarial deficit - the projected shortfall in meeting future obligations - had risen to $75 million by the end of June.
By the time updated, improved numbers were posted, the enrollment period was nearing its end, Kopp said. Thanks to more modest tuition increases and stronger investment returns, the deficit shrank to $47.4 million at the end of December. Its future liabilities are now 91 percent financed, compared with 85 percent last summer.
"The amount of decline [in enrollment] we see so far does not have a significant impact on our actuarial funding," Kopp said. "But if it were to continue, it would have to be factored in."
Sen. Patrick J. Hogan, a Montgomery County Democrat, said he doesn't believe the deficit was a factor because the state offers a legislative guarantee in the plan.
Under that promise, if the plan falls short of its obligations in any year, the governor is required to put the money in the budget. Only if legislators voted against the funds could families be asked to kick in more cash.
"The main reason the enrollment fell below projections is because of the large increases in tuition, which forces the plan prices up," said Hogan, vice chairman of the Budget and Taxation Committee.
Four years of tuition at a Maryland public college is expected to cost about $109,000 in 2022, Marshall said. The price of a four-year contract for an infant today is a lump sum of $34,347, or $311 a month for 204 months, she said. By buying a prepaid contract, families with an infant today would pay only one-third or one-half of what their future tuition bill is expected to be, she said.
The prepaid plan has long struggled against consumer misconceptions, Marshall said. Families often mistakenly believe that the money can be used only at Maryland public schools. That can discourage participation, she said.
To encourage participation, officials have tried to make the prepaid plan more flexible. Families can now buy one semester's worth of college, rather than having to buy a full year.
Officials also hope to work with hospitals to get prepaid plan information in packets given to parents of newborns, Marshall said.
