College savings plan crisis-free

Believe it or not, there is some good news related to higher education finances in Nevada.

Despite serious tuition inflation, the state has one of the country's soundest prepaid 529 college savings plans.

The programs, which let families pay their children's future tuition costs at today's prices, have made the news in other states because some clearly won't be able to keep the promises they've made. It's an all-too-familiar refrain for governments at every level.

Illinois' prepaid tuition plan is in terrible shape. As of June 30, it had an estimated $1.7 billion in liabilities (administrative fees and promised tuition payments) but only $1.35 billion in assets.

Worse, as The New York Times and Yahoo! Finance reported this month, the Illinois prepaid program was marketed as being fully guaranteed to cover 100 percent of students' tuition expenses. The terms "peace of mind" and "no worries" were used in marketing materials when, in fact, the state was never obligated to provide a taxpayer-funded bailout. Parents who thought they had their kids' undergraduate tuition fully prepaid are learning that they'll probably have to set aside more or borrow to foot the bill.

Tennessee officials are so concerned about the solvency of their prepaid 529 plan that the state has stopped enrolling new participants.

For now, the Nevada Prepaid Tuition program, overseen by the state treasurer's office, and the more than 13,000 children enrolled in it face no such threats.

As of last month, the plan is 108.7 percent funded, with assets of more than $130 million. Even if tuition is raised again this year, as expected, it shouldn't have any unfunded liabilities.

Especially for early enrollees, the Nevada Prepaid Tuition program has been a terrific investment. Back in 1998, newborns through kindergartners could be signed up for 120 hours of university credit for a lump sum of less than $7,000, or up to 17 years of monthly installments between $55 and $73.

Today, the lump-sum enrollment of a newborn expected to start college around 2028 costs $21,500 -- today's cost for four years of tuition at UNLV or UNR -- or $180 per month for 17 years. That's a significant sacrifice for a lot of households, especially in this economy.

Like Illinois, however, Nevada's program is not guaranteed to meet its obligations if tuition continues to skyrocket, or if its investments don't yield adequate returns. Only Florida, Massachusetts, Mississippi and Washington have obligated taxpayers to fully fund their plans, according to savingforcollege.com.

"The Legislature made it clear that it was not going to set up a guaranteed program," said Karen Duddlesten, senior deputy treasurer, noting that the program was proposed to lawmakers in 1997 as a guaranteed fund. "They were clear that it was not going to be backed by taxpayers."

Duddlesten keeps the minutes from those hearings in her office, and says the program is up-front with families about the possibility of college costs increasing beyond the fund's ability to pay for them.

The disclosure statement in the plan's master agreement is crystal clear: There is risk, and there is no backing from the state.

It's worth noting, however, that the home page of the Nevada Prepaid Tuition website uses phrases such as "lock in future college tuition rates" and "guarantee the academic future of the children," while its most recent newsletter touts "the financial peace of mind that this Program provides." The program's current fiscal health notwithstanding, those kinds of phrases created the misperception that Illinois would step in to make good if plan resources came up short. Nevada Treasurer Kate Marshall should tone down that sales pitch to erase any doubt.

As college costs have grown, the Nevada Prepaid Tuition program has evolved to try to remain affordable for more families. It now allows students to be enrolled in two-year community college plans, one- or two-year university plans, and a two-year community college/two-year university option. As always, proceeds can be applied to public and private institutions outside as well as inside Nevada.

In addition to the prepaid 529 program, the state's regular 529 savings plan has proved quite popular. The savings plans, also overseen by states, let account holders invest however much they want in a variety of mutual funds, and there are no capital gains taxes on withdrawals used for higher education expenses. Nevada's highly rated plan, which allows residents of other states to enroll, now ranks fifth in the country in total assets with more than $7 billion. Some of the fees from those accounts are used to support the Nevada Prepaid Tuition program, Duddlesten said.

That these programs are a success in a state with so many economic and political challenges is certainly positive. But Nevada's college savings plans also serve as an important reminder that higher education is not an entitlement, that attending college requires hard work, preparation and goal setting and that nothing in this world is guaranteed.

Glenn Cook (gcook@reviewjournal.com) is a Review-Journal editorial writer.