State's Prepaid Tuition Plan Losing Money

COLUMBUS, Ohio (AP) - The state's tuition credits program has lost money for the first time in its 13-year history, meaning the cost of the credits may go up again for the fifth time in the past year.

The fund's condition was revealed in a recent letter to Ohio political leaders from the Ohio Tuition Trust Authority, The Columbus Dispatch reported Saturday. It said sharply rising tuition costs combined with the declining stock market caused the situation.

The authority said that despite four increases that made the cost of tuition credits go up by 53 percent in the past year, its Guaranteed Savings Fund had a multimillion-dollar deficit as of June 30.

The deficit is the amount by which future tuition obligations exceed the plan's assets. The deficit could be erased by a better investment climate or an increase in the cost of credits.

In recent years, the authority's investments have fallen short of their projected 7.5 percent rate of return. At the same time, the Legislature eliminated the previous 6 percent cap on annual tuition increases.

"We could have weathered the elimination of tuition caps or the market downturn happening," said Jacqueline Williams, the authority's executive director. "The problem is both of them happening at the same time."

Authority officials say they don't know the precise deficit, but believe it totals millions. Two years ago, the fund, which has 120,000 participants, had a $108 million surplus.

Other states with prepaid tuition programs have reported similar difficulties.

Under Ohio's guaranteed program, parents can buy credits for future tuition. The credits, based on average tuition at Ohio's 13 public universities, also can be cashed in at private colleges in Ohio or other states.

Although the deficit does not mean the state will need to appropriate money for the fund at this time, it could become a problem in 10 years unless steps are taken to shore up the fund or the market makes a strong recovery.

"This is something that we are definitely looking at," said Joe Andrews, a spokesman for Gov. Bob Taft. "We still think it's a good investment for parents to make."

Williams said the authority is awaiting a review of the guaranteed fund by its actuary. She said it's possible that the prepaid-tuition program still will have a surplus once investment gains and losses are smoothed out over time.

"The time horizon for people in this plan is very long," she said. "We are continually making inroads with people with young children."

(Copyright 2002 by The Associated Press. All Rights Reserved.)