Statewide college savings programs reporting major losses from the economic downturn are still a safe bet for frugal families, according to financial experts.
Maryland’s Prepaid College Trust, a pool of money paid by parents locking in current university tuition, fell to 87 percent funded in December, from 109 percent in June 2008, according to a state audit released Tuesday. That means that if all of the nearly 6,000 enrollees, newborns to high school seniors, were to go to college tomorrow, the fund would come up short.
“The investments within the funds have taken a hit, like other investments,” said Lauren Shipley, spokeswoman for the College Savings Plans of Maryland.
Virginia’s version of the savings plan, the Prepaid Education Program, saw total net assets fall to a $52 million deficit in June 2008 from a $122 million surplus in June 2007. About 72,000 people are enrolled in the program, commonly known as a 529 plan.
Considering the state of the economy over the past year, “I’m certain [the deficit] will increase,” said Mary Morris, chief executive of the Virginia College Savings Plan.
Both programs will sift through projections and past figures in coming months to determine whether they need to raise the price of a locked-in tuition to guarantee the funds’ long-term viability.
Currently, Virginia families pay up to about $45,000 for a four-year contract, Morris said. Maryland families pay up to about $39,000. Fund managers then invest those dollars and work with university systems and governments to ensure tuition prices don’t soar.
The District of Columbia does not offer a prepaid tuition plan but has other forms of college savings programs.
Despite the troubles, financial experts say the plans remain the best bet for families saving for college.
“We like 529s because most states give you a break on state income taxes,” said Janet Bodnar, editor of Kiplinger’s Personal Finance magazine. “And we like the idea that you can choose from a menu of investments within the plan.”
Those include age-based portfolios, meaning higher-risk options when children are young and safer accounts when students are closer to reaching college and payments are near due.
Bodnar cautioned, however, that a recent analysis of age-based plans found some that maintained relatively high-risk portfolios even as students neared college, which became especially troublesome over the past year.
“If you like the idea of life cycle plans, then you need to look into it thoroughly and know what it is invested in,” she said. “A number of plans now have offered more conservative options.”
