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Higher Ed in the News

Stock market threatens state-run prepaid tuition plans

March 10, 2009

The rising cost of college and plunging stock market have combined to create a disparity between what some of the 18 states' prepaid tuition plans have on the books and what they're supposed to pay.

The state-run prepaid tuition programs became popular 20 years ago as a way for parents to pay a fixed amount when a child was young for tuition at a lower price than what they'd pay if they waited until the child enrolled. The states expected the investments' earnings would exceed the cost of tuition.

However, in the last five years, tuition increases have doubled the rise in the rate of inflation, and more recently the market has tanked. To cope, some states have frozen enrollment, redesigned their programs or charged parents more.

Among the states with fewer assets than anticipated liabilities are Alabama, Tennessee, South Carolina, West Virginia and Washington. Seven of the 18 - Florida, Maryland, Massachusetts, Mississippi, Texas, Virginia and Washington - back their plans if money runs short, according to college savings organizations and state officials.

Despite the problems, no plan has failed to pay tuition this school year.  Whether that will remain true in future years isn't clear.

Programs in some states, including Colorado, South Carolina, Ohio and Kentucky, have stopped accepting new participantns into their plans.

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Read more in USA Today.