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Designed as relief, Florida's prepaid tuition brings tension

TALLAHASSEE — The pitch is simple, the allure for families understandable.

Pay for college starting when your child is in diapers or grade school, with a state-guaranteed plan that lets you lock in today's prices.

Clearwater's Tim George and his wife, Pam, bought a Florida Prepaid tuition plan for their baby boy in 1992, joining tens of thousands of families and helping it become the nation's largest prepaid plan.

The Georges paid about $5,000 up front to lock in four years at one of the state's 11 public universities. Today's tuition costs $2,300 a year, or $9,240 for a four-year degree, not including fees.

Yet two decades into Florida Prepaid, tens of millions in budget cuts to the state's 11 public universities and 28 community colleges have some families questioning their investment choice.

Universities are warning of widespread faculty layoffs and enrollment cuts of as many as 17,000 seats in the next few years, which will make it harder than ever for students to get accepted and could weaken already-strained academic programs.

Tim George wonders, what good is Florida Prepaid's lock on tuition if his now-16-year-old son can't get into the school he wants, or if he gets there and finds the quality of education is declining?

Moreover, if they end up using the plan out of state, they can take only the equivalent of today's Florida tuition, which is well below the national average of $6,500 a year.

Prepaid officials and many lawmakers stress that the university system's current struggles do not diminish Prepaid's merit as a smart, albeit conservative, college savings plan.

But families like the Georges worry nonetheless.

"I feel like we were sold down the river," said Tim George, whose son is a sophomore in the medical magnet program at Palm Harbor University High School. "We bought a midsized car, and now we're getting a subcompact."

Hopes and dreams

The Florida Prepaid College Plan started in 1988 with a promise aimed at the state's middle class families.

"Life is full of hopes and dreams," say the promotional materials. "Help your child achieve them with the gift of a college education. ... With the Florida Prepaid College Plan, you don't have to worry about the stock market or if you will have enough money saved."

Families pay the tuition, dorm costs or university fees all at once or in installments, locking in current rates. They can buy the plans from the time a child is a baby, all the way up through high school, potentially saving thousands in college costs.

Then-Gov. Bob Martinez kicked off Prepaid's first enrollment period by buying the first two contracts for his twin granddaughters. The program sold 58,651 tuition and housing contracts in that first year. To date, Florida Prepaid has sold more than 1.2-million plans, making it the nation's largest prepaid program.

But by 1992, the year the Georges bought their plan, the program and its hold on tuition was already a source of tension for lawmakers, university leaders and Prepaid officials.

The Legislature had just approved a 15 percent tuition increase. It still left Florida universities a bargain, with a year's tuition less than $1,750, compared to the national average at the time of $2,500.

But Florida Prepaid founder Stanley Tate warned that such increases were threatening the program's viability.

Lawmakers paid attention, because in establishing Prepaid they agreed to assume any investment risk should the program have trouble meeting its contractual obligations with families. If Prepaid ran out of money, the state was on the hook.

The 15 percent increase of the 1992-93 year was never repeated. Between 1993 and today, in-state undergraduate tuition has never gone up by more than 8.5 percent, with most years seeing an increase of 5 to 7 percent.

"If you want to really raise tuition of any significance, you effectively have to say, 'Get rid of Prepaid,' " said Sen. Charlie Justice, D-St. Petersburg. "And I don't know one senator here who would do that."

Florida Prepaid's actuarial investment strategy counts on an average tuition increase of no more than 6.5 percent a year. When tuition rises by less than that, as it has in recent years, Prepaid's reserves grow. Today, the program has more than $800-million in reserves, up from $530-million three years ago.

"Some say higher tuition equates to higher quality at a university, and that's not necessarily true," said Ted Hoepner, chairman of the Florida Prepaid College Board. "We have at Prepaid a mandate to help people maintain an affordable college education. So we're arguing for a rational, modest increase over time for tuition."

Locked in, but limited

Prepaid is basically one type of 529 plan, a tax-deferred investment option.

The program has clear financial advantages. A freshman who entered a Florida public university this past fall would have paid less than $4,000 for four years of tuition and fees if the family bought into Florida Prepaid when the child was a baby. Compare that to today's actual four-year tuition and fees cost at the University of South Florida, nearly $14,000, and the family saved $10,000.

But Prepaid makes no guarantees about admission into a state university or the quality of the institutions. The program's only promise is that Prepaid will lock in college costs and invest participants' money in a responsible, conservative manner.

"It's a plan that assures your tuition at a rate set today," said Hoepner. "Plus, you earn at a rate that is a competitive rate, equal to about 6.5 percent compounded. Can you do better? Maybe. Can you do worse? Probably."

Alison Painter, a certified public accountant and certified financial planner with a firm in Oldsmar, said families need to consider the limitations of the Florida Prepaid plan.

"The good thing is, it locks in the tuition rate. So if I'm sure my 6-year-old is going to a Florida school, then I'm going to buy the tuition and fees plan," Painter said. "But the bad thing is, if the child doesn't go to college, you only get back what you put in if you ask for a refund. And if you go out of state to use it, you no longer have the lock on tuition."

Tim George's son Scott is a 10th grade honors student in the medical magnet program at Palm Harbor University High School. He has a 4.11 weighted grade-point average and is preparing to take the SAT. He wants to practice medical law, so his top-choice state college is the University of Florida, which has strong medical and law programs.

When the Georges bought their plan in 1992, it seemed like a good idea. The choice of 529 plans available now didn't exist, George said, and the couple liked the idea of a guaranteed tuition cost.

Plus, the University of Florida had a solid national reputation, and other state universities were on the rise.

A middle-class couple, they were not so well off that they didn't need to worry about paying for college, but not poor enough to qualify for government aid. George is a financial planner at JB Hanauer in Tampa. His wife, Pam, stays home and cares for her mother.

But now, the Georges aren't sure their son will get into the state college of his choice. They also worry about the quality of education in Florida's university system.

Ole Miss is another option, but tuition there would cost the Georges about $11,000 a year. So if they transferred their Prepaid plan, they'd still have to find an additional $8,000 or so.

"We just kind of feel like we got shanghaied," Mr. George said. "We thought we had all of our planning done."

Shannon Colavecchio-Van Sickler can be reached at [email protected] or (850) 224-7263.

By the numbers

Florida Prepaid


Year established


Children enrolled since then


Tuition and dormitory contracts sold in first year


Contracts sold to date


Number of students who entered college using Florida Prepaid since 1988


Florida Prepaid students enrolled in college as of fall 2006


Monthly cost for a family buying a four-year college tuition plan for their newborn


Monthly cost for a two-year community college tuition plan for a newborn today


Amount Florida Prepaid has in reserves now


Amount Florida Prepaid had in reserves in 2005

Numbers as of June 2007.

Source: Florida Prepaid College Board


Florida Prepaid

What does it do?

It allows families to pay in advance — at today's prices — college tuition, local fees, campus housing, and a new tuition "differential" charged by UF, FSU and USF.

Who can participate?

Anyone who is at least 18 years old can buy a plan for a future student, including their parent, grandparent, friend or even a business. The child or the child's parent/guardian must have lived in Florida for the past 12 consecutive months, and the student must be an 11th grader or younger.

What does a plan cover?

It depends. Plans can be purchased to cover just tuition, just housing, just fees or a combination. And there are tuition plans for four-year colleges, community colleges and a combination of both.

Is this a risky investment?

Florida Prepaid officials say no. The state financially guarantees the program, assuming any investment risk. But while families may get a refund for the amount they paid for the plan at any time, for any reason, they only get back what they put in — with no interest on their investment.

Where can it be used?

At any of Florida's 11 public universities or 28 community colleges. Families also can transfer the value of the plan – equivalent to whatever Florida Prepaid pays a public college in Florida at the time — to most private colleges in Florida, some technical schools and most out-of-state colleges. For example, a family transferring a four-year tuition-only plan now would get back about $2,300 to be used at a qualifying private or out-of-state institution.

Designed as relief, Florida's prepaid tuition brings tension 03/01/08 [Last modified: Saturday, March 1, 2008 2:45pm]
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