‘Tuition Futures’ Concept Gains Support

By Robert Rothman — March 18, 1987 4 min read

Legislators in some 40 states are weighing “tuition futures’’ proposals designed to help parents save money for their children’s college educations, according to the Education Commission of the States.

Following the lead of Michigan, which adopted a tuition “trust fund’’ plan last December, Wyoming enacted a similar plan this year, and 18 other states are actively considering such proposals, the E.C.S. found in a survey released this month.

An additional 22 states reported beginning preliminary discussions on the subject, while lawmakers in the remaining 8 states reported no action.

The high level of interest reflects “an underlying public concern and fear among parents about their ability to pay for their children’s education in the future,’' said Aims C. McGuinness Jr., the commission’s assistant executive director for higher education.

“We’re seeing a real period of change in how people look at higher-education finance,’' he said. “They are saying, ‘Something should be different,’ but they don’t know how it should be different.’'

In comparison with more conventional forms of student financial aid, such as state-financed grants and loans, the “tuition futures’’ approach, Mr. McGuinness said, “appears at first instance to be politically attractive and relatively low-cost.’'

Mr. McGuinness noted that most of the proposals have been sponsored by legislative leaders, and not necessarily by those with backgrounds as supporters of higher education.

Copying Michigan

Most of the plans under discussion, including the one signed into law earlier this month in Wyoming, closely resemble Michigan’s, and, in fact, several copy the plan verbatim, according to the E.C.S.

“The number of significant variations from the Michigan plan are few and far between,’' Mr. McGuinness said.

Under that state’s plan, originally proposed by Gov. James J. Blanchard, parents can invest as little as $3,000, depending on the age of their child, in a state-run trust in return for a guarantee of four years’ undergraduate tuition at any Michigan public college or university. They can also apply their investment toward tuition at any private or out-of-state college. (See Education Week, Jan. 14, 1987.)

The plan will go into effect after the Internal Revenue Service rules on whether the interest that accrues will be exempt from federal taxation, according to Robert Kolt, a spokesman for the state treasury department. The ruling is expected in the next few months, he said.

An unfavorable ruling would be unlikely to deter many participants, Mr. Kolt added. “People who contact us are interested in a guarantee of tuition for their children,’' he said. “They are not looking for a tax shelter.’'

Legislators in some other states are awaiting the I.R.S. ruling before acting on their proposals, said Sharon Hart, a researcher at the E.C.S. However, she added, like Michigan families, “some proponents feel that a favorable tax ruling is a good benefit, but not the only benefit to the plan.’'

State Variations

While the Michigan plan is the model for most states, some legislatures are considering certain variations, the survey found.

A major issue for lawmakers is how such a plan would be financed, Ms. Hart noted. In particular, she said, they are debating whether the state or the universities would be required to make up the difference if the trust fund’s investments fail to yield the amount necessary to pay future tuitions.

The Michigan plan is expected to be self-supporting, according to Mr. Kolt. If the fund falls short, the state will raise the amount future participants will have to invest, he said.

Other states are considering more significant variations, and at least three states--Connecticut, Minnesota, and New Jersey--are considering the proposals as part of a broader examination of higher-education finance, according to Mr. McGuinness.

Among the ideas under consideration:

  • Gov. John Ashcroft of Missouri has proposed establishing “family education accounts,’' to which parents could make tax-deductible contributions of up to $2,000 a year. The money could be used toward college-related expenses at any public or private college or university in the country.
  • In Massachusetts, a task force established by Gov. Michael S. Dukakis is studying ways to adapt the idea of tuition prepayment to that state’s particular needs, according to Ms. Hart. The panel, which is expected to issue its report this summer, will consider including private colleges in the plan, as well as creating a regional plan for all of New England, she said.
  • The Georgia Senate has approved a measure aimed at helping low-income families save for their children’s college tuition. The proposal would allow the state’s 85,000 recipients of Aid to Families with Dependent Children to set aside 10 percent of their benefits in a state trust fund for that purpose. The money would be matched by a state contribution.

The measure would enable the state “to contribute in a different direction to end poverty,’' according to its sponsor, State Senator Hildred W. Shumaker “We’ve got [A.F.D.C.] mothers who want a better life for their kids.’'

A version of this article appeared in the March 18, 1987 edition of Education Week as ‘Tuition Futures’ Concept Gains Support