Maryland's prepaid college plan ended its fiscal year with a $52.4 million actuarial deficit, but the plan's financial outlook improved in the past six months with the help of a tuition freeze and stronger stock market returns.
At the end of June, the plan had $445 million in invested assets and enough money to cover projected obligations for the next 16 years, said Joan Marshall, executive director of the College Savings Plans of Maryland, which oversees the prepaid plan. A year earlier, the plan had assets of $533 million and a $58.9 million surplus.
"This is reasonably good news since we've come through one of the worst markets since the Great Depression," Marshall said.
The Maryland Prepaid College Trust allows families to lock in the cost of college by paying in advance at a price based on today's tuition and fees. Money is pooled and invested, and the plan pays tuition and fees when the student enters college. The plan has 27,203 beneficiaries, with 7,086 now eligible to draw on their benefits. Open enrollment starts Dec. 1, and the price of new contracts will be going up less than 2 percent from a year ago.
Each year, the plan takes a snapshot of the projected value of the assets against anticipated obligations. Since the prepaid plan launched in 1998, it has operated with actuarial deficits and surpluses. The swings can be dramatic. For instance, the plan had a $75 million deficit in 2004, and two years later posted a $16 million surplus.
Investment returns and tuition increases largely determine an actuarial surplus or deficit, Marshall said.
The plan for the year ended June 30 lost 20.4 percent on its investments, compared with a 5.8 percent loss the year before.
Maryland's plan invests 60 percent of its money in stocks, 35 percent in fixed-income bonds and 5 percent in real estate. After last year's market crash, plan officials took a look mid-fiscal year to see the impact on the prepaid trust. The surplus had been wiped out by the end of December, and the deficit had ballooned to nearly $83 million.
The stock market, which appears to have hit bottom in early March, has regained some ground, which helped cut about $30 million off the projected deficit. The plan had the resources to meet 92 percent of its future obligations as of the end of June, compared with 87 percent in December, Marshall said.
"It looks like it's going in the right direction now after going in the wrong direction," said Joseph Hurley, founder of Savingforcollege.com.
