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Wednesday, October 3, 2012

Attention Legislators: GET Is About Peace of Mind, Not Return on Investment

Posted by on Wed, Oct 3, 2012 at 1:30 PM

Legislators are once again considering what to do about Washington's popular Guaranteed Education Tuition (GET) program? My suggestion: Leave it be.

GET is a 529 program that allows parents to prepay their children's college tuition and fees. Units are purchased at the current tuition price plus a (currently hefty) premium, and are cashed out tax-free at the going rate at the highest priced public university in Washington state, regardless of where your child chooses to go to school.

For example, back in 2002, during flusher times, we purchased our daughter 400 units (four years of tuition and fees) at a price of $42 dollars per unit. The payout rate for the 2012-2013 academic year is $117 per unit. Due to scheduled tuition hikes, the payout rate should be about a third higher by the time my daughter starts college in 2015.

Through an accident of timing our daughter's GET units turned out to be a helluva an investment, but that's never been the point of the program nor its main attraction. No, the number one benefit GET offers is peace of mind. Ten years ago when we we purchased our daughter these units, I knew that no matter what tragedy befell me—bankruptcy, illness, death, blogging—my daughter could afford a college education at the best state school she could get into.

GET didn't guarantee us a decent return on investment. GET guaranteed our daughter a college education. It was an insurance policy against educational insecurity.

And that's what legislators need to keep in mind as they explore GET's future. By design, prepaid tuition programs are most appealing to families with young children. Legislators want to give colleges the flexibility to charge higher tuition rates for more popular undergraduate degrees, but to replace the GET program with one that may or may not cover your child's tuition depending on what they major in isn't a guarantee at all. How was I to know when my daughter was three years old whether I should be saving for a degree in English or a pricier degree in computer science?

As it stands, the GET program is currently underfunded, its $2 billion in assets only covering about 90 percent of its obligations. But this shortfall isn't due to mismanagement or the Great Recession—the equity markets have already recovered from their lows. Rather, GET's precarious finances and soaring premium (new investors are now paying $172 per unit, a 47 percent premium that will take years to recoup), are directly attributable to the legislature's decision over the past few biennia to disinvest in higher education.

The double-digit tuition increases that have undermined GET's balance sheet in recent years were the result of political decisions. Likewise, the legislature's desire to expand slots in more expensive science and engineering programs can be satisfied by a political decision too: Simply raise the revenue (or reprioritize existing monies) necessary to fund this worthwhile academic expansion. Not only would this approach be more straightforward than multi-tiered tuition, it can claim the added bonus of not disincentivizing low income students from pursuing more expensive degrees.

But whatever legislators do, don't use GET as an excuse for failing to provide the educational opportunities our state needs.

 

Comments (8) RSS

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Sargon Bighorn 1
"the GET program is currently underfunded" WHAT? It's funded by those that get involved. People like you Ms Goldy. Your argument that it is underfunded because there is a low investment in education is a non-sequiter. It is in fact an investment product and as such one would expect a "return" on investments. Otherwise your mattress is just as good, which you are not using.
Posted by Sargon Bighorn on October 3, 2012 at 1:38 PM
Will in Seattle 2
It's only underfunded because they keep jacking up tuition, since the share of funding to the Unis is about half what it used to be.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on October 3, 2012 at 1:42 PM
3
I got to go to the University of Michigan because of Michigan's equivalent MET program. I couldn't have afforded it otherwise, and I would be in so much more debt if it weren't for the MET. It's not only a great peace of mind for parents, it's a way for students who couldn't otherwise afford great schools to go to their best option. And beyond that, for the state, it's a great way to make sure that smart kids that can get into the best schools of your state stay in state instead of having a brain drain. I'm a bit of an exception, but most people stay in the area of their undergraduate institution.
Posted by AndyInChicago on October 3, 2012 at 1:45 PM
4
@1 At the time we purchased our daughter's GET units, the premium above the existing tuition price was based on their anticipated return on their investments, plus the assumption that tuition would continue to inflate at the historic rate of about 5.5 percent a year. It's the 14%, 14%, 21%, 21% tuition hikes that have thrown off their balance sheet, and these tuition hikes were due to the legislature slashing funding for higher education.
Posted by Goldy on October 3, 2012 at 1:47 PM
Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn 5
Yeah, some peace of mind. How many legislative sessions do you have to bite your nails through before you get what they promised you? It only takes one crazed majority in Olympia to renege on the deal and leave you holding the bag.

Oh, I know the law says they can't do that to you, but they make up the law as they go. Enjoy your peace of mind.
Posted by Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn http://youtu.be/zu-akdyxpUc on October 3, 2012 at 3:16 PM
Sir Vic 6
@4 Clearly @1 doesn't understand your post in the slightest. You've explained it quite clearly, especially in other recent posts about state education funding.

If the legislature had kept state college funding levels consistent, your $42/unit price would return more like $52/unit now, which wouldn't be unreasonable. But state college tuition costs double what it did a decade ago, mainly because the levels of state funding have dropped.

In the sense that GET is an investment: You bought options in a market completely controlled by the state, and the state fucked up that options market badly by playing both sides of the deal poorly.

If the state legislature fucks GET up again, it will certainly hurt the state's bond rating. These are the kinds of things that credit rating agencies look at.
Posted by Sir Vic on October 3, 2012 at 4:41 PM
7
Why the fuck are we making educating ourselves so goddamn complicated? Net net it's all the same costs and all the same society wide gains so remind me again why the hell can't we just all pay a tiny bit more in taxes each year instead of coming up with complicated ways to do essentially the same damn thing.

The right has adopted a myopic focus on the small percent of people who choose to opt out of normal adult life in terms of everything from health care to birth control, to education at the expense of, not mandating mind you, but just making easier those things that almost everyone with any sense thinks are good. Being healthy, being educated, and being in control of your own body.
Posted by giffy on October 3, 2012 at 10:14 PM
8
@5 It's a contract. The state constitution prohibits passing a law that abrogates a contract.
Posted by Goldy on October 3, 2012 at 10:21 PM

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