Copyright© 2007 by School Services of California, Inc.

                                      Volume 20                   For Publication Date: February 2, 2007             No. 3

California Prepaid Tuition Program 

Assembly Member Jim Beall (D-San Jose) has introduced legislation (AB 152) to allow people to pay at today’s cost for tuition they will use in the future at institutions of higher education, when costs are likely to be higher. The goal of AB 152 is to provide a hedge against inflation for middle-class students who do not qualify for financial aid but are squeezed by escalating tuition increases. 

Existing law has already established the Golden State Scholarshare Trust Act, pursuant to which participants invest money in the Golden State Scholarshare Trust for the benefit of a specific beneficiary for the purposes of the beneficiary’s higher education expenses. The act also establishes the Scholarshare Investment Board as the trustee of the trust, and vests in the board the purposes, powers, and duties of the trust. 

Assembly Bill 152 would establish the California Prepaid Tuition Program, to be administered by the board, pursuant to which eligible purchasers could purchase tuition units at a set value for redemption at a future date for an equal number of tuition units at any institution of higher education (including community colleges), for certain educational expenses of eligible beneficiaries. Under the program, each purchase would be valued at a specific number of, or fraction of, tuition units at the University of California. The bill would require the board to set the number of tuition units necessary to pay for a full year’s full-time undergraduate tuition and fee charges at the University of California at the time a purchaser enters into a tuition unit contract. 

The program is meant to be self-sustaining, with the state reinvesting money contributed by families and earning returns adequate to meet commitments regardless of tuition increases. But if an economic nose dive or actuarial miscalculation left the program unstable, the state could be left holding the bag, subsidizing a college education for a number of students. Other states that have adopted similar plans have had mixed success.  Colorado has been forced to kill its prepaid tuition program, and four states—Texas, West Virginia, Ohio, and Kentucky—have suspended sales of new units for various reasons, according to a Sacramento Bee article. 

Because state taxpayers would assume financial risk if an economic downturn or actuarial miscalculation caused debt or bankruptcy, there is some doubt as to the success of AB 152 in the legislative process. Senator Jack Scott (D-Altadena), chair of the Senate Education Committee, has expressed concern about the fiscal liabilities—can the state afford it? 

—Arnold Bray