Thank you for your editorial “An affordable option for tomorrow’s tuition” (March 28), highlighting the need to begin saving early for college. As Southwestern Virginia’s first certified college planning specialist, I believe that prepaid plans are indeed valuable tools for many families who struggle to fund their kids’ college. However, the very guarantees that make these plans so attractive also represent an often ignored area of risk.
Virginia’s prepaid plan confronts the same challenges — tuition increases and investment performance — that parents face when saving for college on their own. Together, these two factors caused Virginia’s prepaid plan to report a June 30 deficit of $284 million. When pricing new contracts, the plan’s actuaries projected 7.5 percent annual tuition inflation compared to an average of 11.2 percent over the past five years. New contract prices also assume a 7 percent annual investment return instead of the double-digit losses of the previous two years.
Deficits present the possibility that Virginia’s prepaid plan cannot cover its obligations. Most families do not realize that the plan is not a direct obligation of Virginia. As such, families should not view prepaid plans as a risk-free way to combat rising tuition.
As published in The Roanoke Times, April 12, 2010.
