With its long-term future still a big question mark, the Florida Prepaid College Plan launches a new enrollment period Monday.
The plan offers parents a guarantee that the contracts they buy now will cover the cost of tuition when their children enroll in a state community college or university. Other contracts are available to cover dormitory rental and the local fees that are tacked onto basic tuition rates. Under current tax law, plan withdrawals used to pay college expenses are tax-free.
But parents will pay substantially more this year for those benefits, and a movement to increase tuition dramatically in the next decade could eventually put the program out of business _ and could void the tuition guarantee for many families.
Prepaid plan prices are based on the age of the child, the type of contract selected and a projection of future tuition increases and investment earnings. This year a four-year university tuition contract for a newborn will cost $9,567 as a lump sum, a 16 percent increase over last year's price. Those who opt for monthly payment plans will pay $187 a month over 55 months, up 8 percent from last year, or $68 a month over 18 years, a 6 percent increase. The installment plans include a built-in interest charge that was reduced this year from 6.6 percent to 5.1 percent.
The prices are good through Jan. 30. The state also operates a separate investment plan that provides the benefits of tax-free college savings but no guarantees. That plan, which has grown to $16.9-million in assets during its first year of operation, offers continuous enrollment.
By far the largest college savings program in the nation, Florida's prepaid plan has sold 896,000 contracts covering 642,000 children and has $5.3-billion in assets. But prepaid plans everywhere are under pressure as a result of rising tuition rates and declining investment returns. That deadly combination has prompted five states to close plan enrollment at least temporarily: Ohio, West Virginia, Kentucky, Texas and Colorado.
In Florida, supporters of the prepaid plan and proponents of higher tuition locked horns during this year's legislative session. The Legislature ended up hiking tuition 8.5 percent for universities and 7.5 percent for community colleges. However, the debate is far from over. In fact, both sides are gearing up to renew the battle.
University tuition in Florida is well below the national average, which is currently $4,694 for full-time in-state undergraduate students at public universities, a 14 percent increase over last year, according to the College Board. By comparison, tuition and fees on the University of South Florida's Tampa campus are $2,908 for a full year of 30 credit hours.
"It is time for Florida's tuition to increase to at least the national average," the business leaders in the Florida Council of 100 proclaimed in a report published in March. They said students, who get the most benefit from higher education, should be paying "a fairer share" of the costs. Their report also favored giving the universities unlimited power to raise tuition without legislative approval.
The council plans to publish another report on higher-education funding next month. The group has the support of some legislators and of university leaders, who say they support tuition increases to pay for improved quality and enrollment growth.
But big increases year after year would quickly consume the prepaid plan's $169-million surplus and eventually kill the program. If the plan is discontinued, the law guarantees benefits only to those who are in college or within five years of enrollment. Others are promised only their money back with interest. However, the Legislature could choose to "grandfather" in all plan participants, protecting their tuition guarantees.
The conflict over tuition rates and accompanying media coverage prompted a record flood of applications during the last enrollment period; Floridians bought 159,000 new contracts covering 104,000 children. But higher prices could put a damper on enthusiasm this year.
"What's most important is to make sure college stays affordable," said Stanley Tate, chairman of the Florida Prepaid College Board. He has taken to the road to promote the plan and warn of the potential threat to its existence.
"I'm going to tour the state from one end to the other for three-and-a-half months," he said. "I'll go to every PTA meeting I can go to. Wherever 50 people or more will gather, I'm available."
This year's plan prices are based on a projection that university tuition will increase 8.5 percent a year for the next three years and 6.8 percent annually thereafter. Community college tuition is projected to increase 6 percent a year. The future value of the tuition-only university plan that costs $9,567 today is projected to be $34,672 by the time a newborn goes off to college.
Both the prepaid plan and the investment plan have a $50 application fee. The student for whom a prepaid plan is purchased must be a Florida resident or the child of a Florida resident, while the beneficiary of an investment plan can live anywhere.
Both plans can be used at most in-state and out-of-state colleges and universities, whether public or private. However, the value of the prepaid benefit is based on public tuition costs.
_ Helen Huntley can be reached at huntleysptimes.com or (727) 893-8230.
Florida Prepaid College Plan
Enrollment period: Nov. 3-Jan. 30
Phone: Toll-free 1-800-552-4723