SEATTLE — Washington's prepaid tuition program will be frozen for up to two years until the committee that runs the Guaranteed Education Tuition program can figure out the impact of two years of tuition cuts at state colleges and universities.
The tuition program's committee also decided Tuesday to refund some fees to people who bought tuition credits, known as GET units, during the past four years.
In a meeting in Olympia, the committee decided to postpone until September its decision on whether to allow people to withdraw their money from the prepaid tuition program without penalties and how those refunds would be handled.
"We're not considering not solving this problem," said David Schumacher, director of the state Office of Financial Management. "We need to take our time and do this correctly."
The committee also plans to discuss next month whether the state should start a new 529 college savings plan, and the panel's members have not decided whether to freeze Guaranteed Education Tuition contributions that are being paid on a custom monthly plan.
The fee refund, which will come in the form of a check to account owners, will amount to about $20 per unit purchased during the past four years when the program was adding a fee to make up for past losses in the Guaranteed Education Tuition program.
The total cost of the refunds will be more than $60 million and will affect more than 50,000 accounts, according to the program staff. The refunds will not result in the program losing its ability to pay out tuition units when customers want to use them, program Director Betty Lochner said.
The program freeze means people will not be able to buy tuition units unless they are already buying through a payment plan in which they can continue to invest. The freeze will give the committee time to study the effects on the program of decreasing tuition costs and the feasibility of starting a new 529 college savings plan.
Washington's prepaid tuition program is a state-run 529 college savings plan. Investors are guaranteed that no matter what happens to the stock market or state tuition, they will be able to pay for an academic year of tuition and mandatory fees at the state's most expensive public college or university with 100 units. Tuition and fees at less expensive schools cost fewer units, and housing is extra.
During the Great Recession, the 17-year-old Guaranteed Education Tuition program got to a point where it wasn't fully funded and lawmakers started getting nervous about its viability. But after a few years without tuition increases, by 2014 the prepaid tuition program was back to being fully funded, with current assets at about $3 billion.
Lochner says the Guaranteed Education Tuition program is 115 percent funded, which means it has more than enough money to pay its obligations to investors. State Actuary Matt Smith has said that even if people start pulling their money out of the program, the fund will have enough money to pay its obligations.
The current issue involves worries by parents who have been buying units at a price of $172, while the plan pays out at $117.82 per GET unit. This probably won't be a problem for kids who aren't going to college for years, because tuition has historically gone up over time. But it makes parents with older students and later investments anxious.
The price of GET units increased as tuition jumped during the recession, from $117 in 2011, to $163 in 2012 and $172 since 2013.
Some parents, grandparents and other relatives buying GET units testified at the meeting that their accounts are effectively "under water." It seems likely they have made a higher investment than the future college students will receive in unit payouts when they attend college.
Committee members and staff assured them they would do their best to make sure their situations would be resolved either by committee action at an upcoming meeting in September or through individual waivers.
"I do believe it's important this committee do the right thing based on full information," said committee member Elizabeth Stecher Berendt, who said the decision to charge the "makeup" fee probably was not the right move. "We just ask for a bit more patience."