If you are one of the many baby boomer parents who invested in state-run prepaid college tuition plans, it’s probably time for some due diligence.
Colleges and universities are strapped for cash because of the recession. At the same time, severe market losses have impaired the ability of pre-paid tuition plans to meet their obligations. In some cases, the accrued plan liabilities now exceed plan assets.
Where are the Pre-Paid Tuition Plan Problems?
So now boomer parents and their college-age children are facing the double-whammy of rapid increases in tuition and a decreasing ability of the state pre-paid tuition plan to pay that tuition.
Alabama’s Pre-paid Affordable College Tuition Plan is in the worst shape. The value of its assets dropped from $899 million in September 2007 to $463 million at the end of January, 2009. Other plans are in trouble as well.
Here is a summary of the current bad news from the Log Cabin Democrat:
The pain isn’t just being felt in Alabama. Among the other states with fewer assets than anticipated liabilities are Tennessee, South Carolina, West Virginia and Washington. Only six of the 18 — Florida, Maryland, Massachusetts, Mississippi, Texas and Washington — back their plans if money runs short, according to college savings organizations.
If you have invested in one of the pre-paid college tuition plans not backed by the state treasury, I would get busy and see what you can do to protect your investment.
For more information, check the state plan links at CollegeSavings.org.