In what is believed to be the first survey testing parents’ responses to a state’s guaranteed-tuition plan, Michigan parents have registered “overwhelming” interest in participating, prompting state officials to consider limiting enrollment in the first year.
Michigan in December 1986 became the first state in the nation to enact a plan allowing parents to prepay their children’s college tuition at current rates, but several other states have since adopted similar plans, including Florida, Indiana, Maine, Tennessee, and Wyoming--the first state to begin offering prepayment contracts.
Citing the financial risks and untested nature of tuition guarantees, however, California’s Gov. George Deukmejian last week vetoed a bill that would have established a plan similar to Michigan’s, and Gov. James R. Thompson of Illinois recently opted to back a college-savings-bond proposal instead of guaranteed tuition.
Fixed Amount Invested
The Michigan plan allows parents to pay from $3,500 to $5,000 to guarantee tuition for a newborn child at any state public college or university, regardless of how much fees rise by the time the child enrolls.
While Michigan cannot enter such contracts with parents until the Internal Revenue Service rules on the program’s tax-exempt status, 63 percent of the parents surveyed in August said they were interested. The Michigan Education Trust estimates that about 300,000 students from 200,000 households could potentially sign up for the program, a much higher number than anticipated.
The estimate is derived from census data targeting the population likely to participate and a telephone survey of 950 Michigan households conducted for the met by c.r.w. Associates, a Detroit-based market-research firm.
Although only 23 percent of those interested indicated they would sign up in the first year, the state is exploring ways to limit enrollment to keep the plan financially viable. The median amount respondents were willing to pay to enroll in the program was $4,700, and nearly 45 percent of those polled favored a first-come, first-serve approach as opposed to a lottery or quota system.
“The interest out there is tremendous,” said Lynne Schaefer, president of the trust fund. “It’s not necessarily that interest is so high that we can’t meet the demand, but we can’t let everyone in the first year.”
She maintained that the plan would remain solvent as long as enrollments are spread over several years.
Ms. Schaefer said that “initial indications” are that interest in the program will remain high even if a negative irs ruling necessitates a modification in the legislation to delete the tax exemption.
Interest High Nationwide
John D. Finnerty, executive vice president for csb Holdings Inc., a financial-services corporation in Princeton, N.J., said the Michigan survey findings are not surprising given rising college costs. Response to a college investment plan offered by his firm indicates, he said, ''that the same high level of interest exists through4out all 50 states.”
At a recent conference on college prepayment and savings plans sponsored by the Education Commission of the States with the American Council on Education, the College Board, and the National Center for Postsecondary Governance and Finance, Mr. Finnerty and others cited the financial risks of such plans and warned that their sponsors may be overestimating the rate of return and underestimating the number of takers.
Citing states’ lack of experience with such plans, Mr. Deukmejian last week vetoed a guaranteed-tuition bill similar to Michigan’s that was spon8sored by Assemblyman Tom Hayden, a Democrat who chairs the subcommittee on higher education.
Public guaranteed-tuition plans “expose states to risks that they may not be fully able to handle” and that their sponsors “might not fully appreciate,” said Mr. Finnerty. “The governor’s veto was a recognition of that fact.”
Mr. Finnerty contended that some private savings programs may be better equipped to plan for those risks.
“Although we had agreed with the policy objective” of helping parents fight rising college costs, “we were concerned that the bill was untested and could involve indeterminatestate costs,” said Peter Mehas, an assistant to the Governor for education. “There are some areas we don’t mind being pioneers in, but with this one we don’t feel there’s sufficient experience” to take that risk.
“We’re playing with some pretty big numbers here,” he said, adding that Mr. Deukmejian “does not believe it is government’s responsibility to provide a savings plan to send children to college” with the range of plans and student-aid options already available. Mr. Mehas also said private institutions feared the plan would threaten their enrollments.
Curtis Richards, a consultant to theion subcommittee, maintainedthat the bill addressed that concern and drew support from private colleges by including a savings plan that would have allowed parents to invest in tax-exempt bonds earmarked for expenses at any institution.
Governor Thompson opted to approve a bill favoring that approach, which was considered “less drastic and more workable” than the guaranteed-tuition route, said Gail Lieberman, his assistant for education. Ms. Lieberman said the plan would allow parents to purchase bonds in small denominations with incentives, such as an additional premium, to use the savings toward tuition.
Mr. Thompson’s approval hinged on a change in the bill’s tax provisions and other modifications that the legislature must now consider.
