A Lack of Funds Puts Mass. Plan For Saving College Tuition on Hold

By Mark Pitsch — September 18, 1991 2 min read

A Massachusetts college-tuition savings program, signed into law more than two years ago, is not yet operational because the state agency responsible for the program has been unable to raise $450,000 in start-up costs from the private sector.

As planned, the College Opportunity Fund would allow parents to buy state bonds that would appreciate at a rate equal to the average rise in tuition at a national sample of colleges and universities.

Proceeds from the bonds could only be used at participating Massachusetts institutions, which in turn would agree to make up the difference if their tuition rises exceeded the national average.

Officials say that the fund if implemented would be the first college-savings plan to tie bond returns to tuition increases.

The law requires the state potentially to subsidize the bonds by guaranteeing that their interest earnings equal average tuition increases.

If college tuitions were to rise faster over the course of several years than the fund’s growth through investments, the state budget could be hit with substantial additional costs.

Sponsors envisioned that the Massachusetts Educational Financing Authority, which is to administer the program, would be able to finance its start-up costs from contributions from businesses and foundations. So far, the money has not been forthcoming.

“We’re literally in a conundrum,” said Paul C. Combe, executive director of the M.E.F.A.

“TO be able to raise the money in the private sector ... they want to see what the program would look like when it’s up and running,” Mr. Combe explained. “But we can’t get it up and running until we get an [Internal Revenue Service] ruling. To get an I.R.S. ruling, we need the money.”

Bill Introduction Considered

About $50,000 is needed for the ruling, in which the agency would determine if the bonds would be tax exempt, Mr. Combe said. Such status is critical for the program to work, since parents would be unlikely to sign on if they had to pay taxes each year on the interest earnings.

U.S. Representative Edward J. Markey, Democrat of Massachusetts, may introduce a bill that would make college-savings programs tax exempt, allowing them to bypass the step of having to obtain a ruling, according to an aide.

Additional start-up expenses for the program include new computers, marketing and education materials, and other legal fees, Mr. Combe said.

Mr. Combe said the idea for the college-fund program was developed in 1986 with the assistance of the higher-education community. The M.E.F.A. which was created in 1982 by the legislature to provide low-interest loans for college costs, agreed to administer the fund.

A version of this article appeared in the September 18, 1991 edition of Education Week as A Lack of Funds Puts Mass. Plan For Saving College Tuition on Hold