Pre-paid tuition dangerous for California

Katrina Mossberger

The bill AB 152, recently reported on by the Sundial, sounds like a great, albeit ambitious, idea. The bill, if passed, would allow people to buy tuition for future college attendance at today’s price. It’s a potentially great idea for parents to buy tuition at the current costs in an effort to put their children through college cheaper in the future.

The pre-purchasing of attendance comes at the current University of California cost, which is good news if you decide to attend a California State University, like CSUN which generally cost less. The excess money can be used for other school related expenses like books or housing. The program may be used at a Free Application for Federal Student Aid approved school, so the program is extremely flexible and can fit many needs.

However, this ambitious idea is not as simple as it seems. The tuition that a person buys is put in the tax-exempt Scholarshare Program. The invested money over time creates a dividend to pay the difference of the bought tuition and the current tuition prices.

It sounds very similar to putting money in the bank and getting interest on your money, only with a much higher interest rate. It seems unlikely that many people have $8,000 or more lying around to invest in four years of tuition ahead of time. Some crafty consumers who do may decide they can take the same amount and invest it in bonds or the stock market and make enough money for double the units they were going to purchase. Investing in the Scholarshare Program seems a lot more stable and risk-free, though.

If the economy enters a recession, the buyer who bought 10 units will still have 10 units when they go to redeem them. However, it will be the state, and ultimately, the tax payers, who make up the difference.

There’s always the question of whether or not people will actually use the system. Who knows if your child will even decide to attend college, or heaven forbid, still be around. According to the bill, money will be refunded, but that’s still money you did without for many years, hoping that you’d be able to get cheap tuition.

Other states’ pervious pre-paid tuition programs have failed. Colorado completely cancelled its program, while other states like Texas, Kentucky or Ohio have had to stop selling new units.

Judging by the recent stock market falters, I’d say our economy is not in particularly great shape. Another economic blunder where the tax-payers are forced to pick up the slack is the last thing this country needs. It will be a fine line that this program will have to walk to succeed and not drain money from the tax-payers.

It’s a great idea to pre-sell tuition to encourage families who might not have previously considered sending their child to college to do so because they can do it cheaper. However, it seems very risky to put that kind of pressure on the state if the economy does falter. And it may be hard to convince people to invest a substantial amount of money in something that is many years down the road. I will be interested to see if the bill is passed, and if so, I may even consider investing for my future kids.