Hoping to mollify parents who invested in the state’s prepaid college-tuition program in recent years — an investment that, so far, has been a losing proposition — a state committee will consider letting all Guaranteed Education Tuition (GET) investors pull their money out without penalty.
The committee will also consider freezing sales of GET units for up to two years. But Betty Lochner, director of GET, said she didn’t think this was the beginning of the end of the program.
“This is a program that people want,” she said. “It has so much grass-roots support.”
The five-member GET Committee will consider the changes during a public meeting Tuesday.
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Washington runs one of the few college-savings programs in the country that allow parents to pay tuition in advance, but at a premium price that’s higher than the cost of tuition today.
For the first dozen years, that formula worked. The premium was low, tuition rose steadily, there were no huge swings in the stock market, and the state invested GET funds in such a way that the program was widely regarded as a success.
But during the Great Recession, Washington legislators allowed in-state college tuition to rise by as much as 20 percent, even as the stock market fell. One hundred units of GET are guaranteed to cover a year of tuition at the most expensive public university in Washington, so the sharp spike in tuition threw the program out of balance, causing it to be underfunded.
This year, the Legislature rolled tuition back at public colleges by 5 to 20 percent for 2015 through 2017, making Washington the only state to cut tuition. Legislators also froze the payout value of GET units at $117 for the next two years.
It’s now possible that parents who bought GET units during the last four years, when the unit price was between $163 and $172, might never get as much out of GET as they put in. It’s an especially worrisome issue for parents whose children are going, or plan to go, to private or out-of-state colleges — where tuition is rising by 3 to 4 percent a year.
GET units cost $117 in 2011, but the price increased sharply, to $163, in 2012, to factor in tuition increases and to make up for losses in the fund. Since 2013, a unit has cost $172. About 4 million GET units were sold between 2012 and 2015.
Lochner said the GET staff is recommending four steps so recent investors don’t lose money and all investors get a chance to cash out without incurring penalties. The proposals will be considered at Tuesday’s meeting and they’re not an either-or proposition: The committee is likely to vote on passing all four of them as a package, Lochner said.
▪ Refund the “amortization fee” charged to investors who purchased units during the last four years. The fee was meant to help the fund recover losses incurred during the Great Recession, and ranged from $18 to $20 per unit. The refund would be in the form of a check, likely issued within the next three months. An investor who bought 100 units in the last four years would receive about $2,000.
▪ Allow all GET investors — regardless of when they bought their units — to withdraw from the program without incurring the 10 percent state penalty written into the GET contract. To avoid an additional 10 percent federal penalty, GET holders would need to roll their money into another college-savings plan (called a 529 plan) within 90 days of withdrawing. Investors would have more than a year — between August 2015 and December 2016 — to decide whether to withdraw their funds.
▪ Give recent investors all their money back if they decide to withdraw. Those who bought GET units at a higher price than the current payout value of $117 would receive their investment back — that is, if they paid $172 a unit, they would receive $172 back (minus the amortization refund, if they receive one before withdrawing from the program). All others would receive $117 per unit, regardless of how much they originally paid.
▪ Close the plan to new investors for up to two years, “until we figure out what GET will look like in the new world of lower tuition,” Lochner said.
The GET fund now totals about $3 billion. Lochner said GET is currently 115 percent funded; that is, it has more than enough money to pay its outstanding obligations to investors. She said state Actuary Matt Smith has calculated that if the “worst-case scenario” happened and a large group of investors pulled their money out, the fund would still have enough to cover all of its obligations.
During Tuesday’s meeting, there will be two opportunities for public feedback, Lochner said. The meeting, on the state Capitol campus in Olympia, begins at 1 p.m. in the Cherberg Building’s Senate Hearing Room 4. The meeting will also be broadcast on TVW and streamed here.
The committee has also been soliciting public comments via this online form.