Parents saving for their children's college education through Pennsylvania's prepaid tuition plan got a reprieve yesterday when state Treasurer Robert M. McCord delayed the imposition of premiums of up to 8 percent until Sept. 12.
The premiums were to go into effect today. Mr. McCord postponed them after some account holders did not receive notices of the premiums until late last week. That gave them little time to avoid the premiums by investing in the college savings plan before then.
Nearly 89,000 individuals are enrolled in the state's $1.1 billion Guaranteed Savings Plan plan, which allows parents, grandparents and others to purchase college tuition credits at today's prices. The theory is that the state will be able to earn enough on the investments to cover the cost of tuition when investors redeem the credits as their children enter college.
The premiums are being charged because the stock market's collapse last year cast doubt about the fund's ability to keep that promise. The fund had a deficit of $222.9 million as of June 30. That meant it had only 83 percent of the money needed to purchase the $1.3 billion in tuition investors have prepaid for, according to a report by the fund's actuary.
The Treasury is imposing premiums of 8 percent for those purchasing tuition credits for the University of Pittsburgh and Penn State. Premiums of 2 percent will be imposed for credits at Temple University, private colleges and Ivy League schools. There will be no premiums for Slippery Rock University and other schools that are part of the State System of Higher Education or for community colleges.
Once the premiums are imposed, a unit of tuition at Pitt that cost $535 in the 2008-09 school year will cost $556 for students enrolled in the 2009-10 school year and $600 if purchased for future use through the state's guaranteed college savings plan.
Postponing the premium will allow investors to purchase tuition credits at 2008-09 prices through Sept. 11. Investments made through the mail must be postmarked no later than Sept. 11 and online deposits must be made no later than 11:59 p.m. that day.
"We understand a few account holders just received the letter and wanted to give everyone ample time to make contributions," said Treasury spokeswoman Carrie Fischer Lepore.
Other states with prepaid tuition plans are also facing deficits because of the stock market's broad decline in the second half of 2008. Some of those are also imposing premiums or closing their savings plans to new investors.
New asset-based fees for the college savings plan go into effect Oct. 1. Account holders will have to pay $4.90 for every $1,000 they have in their account. The state currently charges a flat $25 annual maintenance fee, which is waived for investors who contribute at least $25 monthly.
Separately, a state lawmaker is proposing legislation that he says will clear up any misconception that the college savings plan is "guaranteed" by the full faith and credit of the state government.
"There is absolutely no way the taxpayers of this Commonwealth can be responsible for any deficit this program may incur," said state Sen. Jeffrey Piccola, R-Dauphin, chairman of the Senate Education Committee.
Mr. Piccola is proposing removing the word "guaranteed" from the plan's name and requiring the state auditor to conduct an annual audit of the fund.
Len Boselovic can be reached at email@example.com or 412-263-1941.