Fixing tuition plan is a must
When state officials conceived College Illinois, they put themselves in the position to overpromise and underdeliver.
A decision by state officials to suspend sales of new contracts to College Illinois demonstrates the seriousness of the financial problems surrounding this popular prepaid tuition program.
But the good news is that the state has time to address the problems, assuming it has the will to do so.
Program managers say College Illinois has the financial resources to meet its enrollees' tuition obligations for the next 10 years, even if it remains closed to new investors. Even though it's underfunded to the tune of 30 percent, College Illinois is in better shape than the state's beleaguered public pension systems.
College Illinois has proved to be extremely popular since it was created in the late 1990s, with more than 30,000 families holding contracts for more than 50,000 future college students. There's no mystery as to why.
Watching college tuition increase year after year, many parents were both intrigued and comforted by the opportunity to prepay a lesser sum now that would cover higher tuition costs in the future.
The difference, according to the plan, was to be made up by investment income generated by the prepaid tuition money.
But there were two potential problems that, incredibly, were not anticipated by state officials — dramatic increases in tuition costs and lower-than-anticipated returns on investment income.
How can you promise to make future tuition payments when you don't know what those costs will be or how much income you will generate from investments?
It's almost laughable to realize that state officials apparently never took those basic financial realities into consideration — at least they didn't until they got into trouble over the past couple of years.
College Illinois now faces the worst of both worlds as the Illinois Student Assistance Commission prepares to study the problem and suggest solutions — tuition rates are jumping annually in large increments while investment returns have fallen to numbers substantially less than the projected annual rates ranging from 7.5 percent to 8.75 percent. Indeed, given the requirement that College Illinois investments involve minimal risk, those project returns border on fantasy in the current economic climate.
It's impossible at this point to ascertain the commission's specific recommendations. But it's not hard to conclude that they'll be forced into reducing the tuition benefits for new enrollees.
One news report speculated that "universities, parents or both would have to plug the gap between what the plan accumulates and actual tuitions." In other words, the prepaid tuition program won't actually be a prepaid tuition program — it might be a 75 percent paid or 90 percent paid.
There's one more thing parents of prospective college students need to realize — the tuition plan is not guaranteed by the state. So they need to consider a variety of options to save for their children's educational future.
College Illinois was packaged as a one-stop shopping plan to address one of the major concerns many parents have — how to pay for their child's college education. Unfortunately, it was not just simple but simplistic, and that's why it needs to be fixed.