Updated Tuesday, January 15, 2013 at 10:16 PM
The state’s prepaid college-tuition program should be shut down to new contributions this year and eventually closed when the last account-holders are paid off, a legislative advisory committee will recommend this week.
The committee, headed by Senate Majority Leader Rodney Tom, D-Medina, is expected to release a report Wednesday recommending an end to the Guaranteed Education Tuition program, or GET.
The popular program, the second-largest of its kind in the country, has about 120,000 active accounts, set up by parents and grandparents to pay tuition bills years before they come due. It has about $2 billion in assets and is underfunded by about $631 million.
Just how much weight the recommendation might carry remains to be seen. Phasing out GET could be a hard sell: Voters like the program, and past proposals to amend it have been unsuccessful. At the same time, a number of states have shut down their prepaid tuition plans in recent years as skyrocketing tuition rates have left them underfunded.
In several meetings over the fall and winter, the eight-member committee touched on the possibility of ending GET, but its focus was to look at how charging different tuition rates for different programs would affect the prepaid tuition plan.
This month, Tom sent an email to committee members for their recommendations, and one of the poll choices was to close GET. Six members voted for that option.
“Actually, I’m kind of surprised we’re even making that recommendation,” said Sen. Bob Hasegawa, D-Seattle. Hasegawa voted against closing GET because he believes it’s a good program to help families save for college.
He called a phaseout “the nuclear-bomb option.”
Tom said he envisions a “thoughtful shutdown” of the program that would take place over many years. GET would continue to pay investors who hold accounts but would not sell any units after the current enrollment period ends this spring.
“We just feel there was a promise made, and there needs to be a promise kept,” he said. “But we won’t be taking new money” under the committee’s recommendation.
Even though it’s underfunded, GET costs the state no money right now. The state actuary estimates that if the program stops accepting contributions, it would cost the state $1.67 billion over an 11-year period beginning in 2025 — the year that “we will run out of money” if there are no new investors in the program, said GET director Betty Lochner.
Lochner has tried to make the case to legislators that GET is a long-term investment program, much like a pension fund, and that it eventually would recover if legislators left it alone.
At least among the members of the advisory committee, the proposal to close the program is supported by politicians on both sides of the aisle.
Two years ago, Senate Majority Leader Lisa Brown tried, and failed, to pass legislation that would have changed GET’s payout value, pegging it to the average tuition at all of the state institutions of higher education.
Brown, now chancellor of Washington State University, Spokane, who was a Democratic member of the GET advisory committee, said she still prefers changing the GET payout value, creating a GET 2. If there’s no support for that, Brown said, she would favor ending the program.
Rep. Chris Reykdal, D-Tumwater, wants to stop selling new GET units this year, noting that most states already have ended their prepaid tuition programs.
Rep. Ed Orcutt, R-Kalama, said he originally opposed a shutdown of the program but now favors it. Orcutt said he fears investors will eventually decide GET isn’t a good deal anymore because the program now charges an additional $19 fee for each GET unit purchased — part of a recovery plan to make the program solvent in about 20 years.
“People who are buying in now are helping to fund the unfunded liability,” Orcutt said. “How long before people decide it’s not a good deal for them?”
GET credits currently cost $172 per unit and are for sale this year through May 31. The payout value this year is $117 per unit. Investors do not lock in tuition at today’s prices when they purchase GET; in effect, they’re paying a premium on the payout amount, anticipating that tuition will be much higher when their children reach college age.
The unit cost includes the $19 fee to help shrink the unfunded liability.
GET is underfunded in large part because of the precipitous increase in tuition at the state’s universities over the past four years. The fund also lost money during the recession, when the value of its investments fell, although much of that has been recovered.
The program’s biggest state impact has been to tie the hands of state universities, which would like to offer more slots in popular degrees like engineering and business by charging higher tuition rates for those programs. The universities would then use that money to grow the programs.
But because the GET payout is tied to the highest tuition rate at the most expensive state school, allowing higher tuition for some programs — called “differential tuition” — would make GET payouts higher, too.
For that reason, the committee will also recommend that differential tuition be allowed at every school except the University of Washington, which already charges the highest tuition in the state, Tom said.
Katherine Long: 206-464-2219 or firstname.lastname@example.org. On Twitter: @katherinelong