Thousands and thousands of parents have planned for their young child's future by buying Florida Prepaid college contracts, locking in tomorrow's education at today's prices. But more than two years ago, an accounting issue arose when several universities were allowed to charge "differential tuition," costs above and beyond the basic rate on which Florida Prepaid based its projections. Without charging those parents an extra penny, the Prepaid program and the Florida Board of Governors have reached a fair way to deal with the issue. It is a reasonable solution, and legislators should approve it.
Here's the problem: More than 400,000 Prepaid contracts were taken out before July 1, 2007, when differential tuition started. Those parents paid their money in good faith for their contracts, and it is fair that they will not be affected. But when those children grow up and enter college, how much should that college receive from Prepaid?
Technically, Prepaid may have owed the university only the "base" tuition at the time the child actually enrolled — and with "differential" tuition likely to make up a more substantial part of overall tuition in the future, universities worried about a large gap. But Prepaid could have faced a big unknown had it committed to covering the whole tuition cost when the contracts it sold to parents at the time did not anticipate differential tuition.
Prepaid and the Board of Governors have reached a reasonable compromise. In essence, the agreement means that Prepaid will base its payout to a university on today's costs inflated at 6 percent to 6.5 percent interest a year until that child starts college. This solution gives universities a guaranteed rise in income from each Prepaid contract and still caps the Prepaid fund's rate of payout. And those parents are not affected.
What about future contracts? Now that differential tuition exists, parents taking out new contracts for "base" tuition can decide for themselves whether to add an additional plan that covers "differential" tuition.
If they choose the base option, the student will have to pay the differential tuition. That is fair for parents going forward and for the university system as well as the Prepaid board. Cleaning up this confusion from the past will clear the way for a broader discussion about tuition and the quality of a college education in Florida.