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Market Endangers State-run Prepaid Tuition Plans

by Associated Press , March 12, 2009

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MONTGOMERY Ala.

State-run trust funds for parents who want to pay off college tuition before their children enroll are running short on cash, and program officials worry they won’t be able to pay for students who are counting on the money.

The rising cost of college and plunging stock market have combined to create a disparity between what some of the 18 states’ prepaid tuition plans have on the books and what they’re supposed to pay. The worst case is in Alabama, where the sour economy has sliced off nearly half of the fund’s assets, and state officials are telling parents the full cost of college isn’t a sure thing.

The board overseeing the plan there is scrambling after assets lost 48 percent of their value since September 2007, and they currently have only about half of what they need to pay what families are expecting. Unless the market shifts quickly or the plan receives an infusion of cash, it would run out of money after nine more years of paying full tuition. The plan could also reduce payments to families.

“I thought the money was in the bank,” said Montgomery attorney Larry Menefee, who was caught by surprise when he received a letter telling him tuition for his triplet sons wasn't guaranteed.

He was counting on the money to help cover costs for the three, who are starting college in the fall. He has saved literature since his children entered the program, and letters in his file promise it will “will guarantee payment,” even though administrators now say the state law setting up the program never guaranteed full coverage of tuition.

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