Colorado college tuition fund closing by November
DENVER (AP) — A state fund set up to help families cut the cost of college tuition by paying in advance has been found financially unsound and will close later this year, affecting more than 1,500 investors.
The Colorado Prepaid Tuition fund is telling investors to pull out their money by Nov. 1. The 1,500 households enrolled have invested about $24 million.
Prepaid tuition funds allow investors to pay for future college tuition costs at present-day rates. State-based plans typically guarantee a rate of return that varies with changes in tuition. As the tuition rate increases year to year, so does the rate of return.
CollegeInvest, which provides multiple college savings plans, is a not-for-profit division of the Colorado Department of Higher Education. CEO Angela Baier said there are 320,000 enrollees in other 529 plans that allow people to set aside money for college and get tax breaks, the Denver Post (http://tinyurl.com/mo88cw6 ) reported Thursday.
Prepaid fund enrollees will receive a 5.5 percent return on their investment Aug. 1 and will have until Nov. 1 to withdraw it. Investors can do what they want with their money, including taking all of it out or rolling it into one of CollegeInvest's 529 funds, Baier said.
CollegeInvest is shutting the fund down before it collapses to keep the remaining investors from losing money, she said.
"No one has lost any money," Baier said.
The fund became unsustainable because of rapidly increasing tuition rates during the past decade, Baier said. Instead of the expected 3 or 4 percent rate of return, the fund was paying its maximum 5.5 percent rate and could not keep up.
Unlike prepaid funds, the other savings plans are not tied to the cost of tuition. Instead of paying for future tuition, the plans allow investors to contribute money to a fund that can be used to pay for the cost of college at a later date.
Established in 1997, the Prepaid Tuition Fund has had trouble in the past. It closed to new investors in 2002 after contributions and returns fell short of covering future tuition payments.
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Information from: The Denver Post, http://www.denverpost.com
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