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Ruling May Curb Federal Aid for Students in Michigan Trust

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A U.S. Education Department ruling could make it more difficult for some students enrolled in Michigan's popular prepaid-tuition program to qualify for federal college aid.

The department has told the state that funds generated by the Michigan Education Trust will be considered a student asset, not a family asset, in calculating students' eligibility for federal aid.

The difference is significant, because federal formulas assume students will contribute as much as 35 percent of their own assets toward college costs each year. Families are expected to contribute smaller percentages.

"It is the most stringent approach the department could have taken,'' said Phyllis Hooyman, director of financial aid at Hope College in Holland, Mich., and president of the Michigan Student Financial Aid Association.

The ruling, which could set a precedent applicable to similar prepayment plans elsewhere, was made in September but attracted wide public attention only this month.

"A student trust fund of the met type is required to be reported as a student asset," Frank A. Williar, chief of the campus- and state-grant branch of the Education Department, wrote in a letter to Ms. Hooyman. "This requirement is made through the need-analysis provisions of the Higher Education Act of 1965, as amended, which defines the term 'as8sets' as including trust funds."

The met was the first of various state plans allowing parents or others to contract to pay in advance to guarantee a child's future tuition at a state college or university.

In two years, nearly 50,000 children have been enrolled in the program, creating an endowment of nearly $350 million. The cost for enrolling a newborn baby last year was about $7,500 to guarantee four years of tuition.

Impact Assessed

Ms. Hooyman said it was difficult to predict the ruling's impact. Many families enrolling their children in the trust, she noted, are middle- or upper-income and do not expect to be eligible for federal aid anyway.

But families with lower incomes who are considering the trust program, she added, should be cautioned that participation could reduce their children's chances of getting federal aid.

"We just want to run up the red flag on this," she said.

Education Department officials have said the ruling applies only to Michigan, but have noted that their interpretation of the law could apply to other prepaid-tuition programs in which students are the beneficiaries.

Michigan State Treasurer Robert A. Bowman, the architect of the trust fund, has suggested that the ruling goes against the need to promote savings for college, and he predicted the Congress might take action to reverse it.

But Richard T. Jerue, staff director of the House Education and Labor Committee's postsecondary-education subcommittee, said last week that there may not be any sentiment to alter the department's stand.

"Congress has been reluctant in the past to provide students with more assistance than their need shows," he said. "If [an met contract] is a resource available to the student, that should be looked at in determining their student-aid eligibility."

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