The Downfall of the Prepaid Tuition Program

As part of my day job, I do a lot of work on higher education policy and college affordability. A major topic of interest in a number of states has been the long-term viability of prepaid college tuition programs.

Basically, a prepaid tuition programs allows families to lock-in the price of college at a lower cost than it would be in the far-off future (and with certain tax benefits). A family purchases prepaid tuition units from the state – units typically translate into a set proportion of future tuition i.e. 100 units may equal one year of college tuition – and on the other side of the transaction, the state invests the money they receive allowing it to grow over time and eventually pay the families who bought units long ago.

It’s a smart program. It allows many young families and moderate income households to save for college by leveraging the stock market. For the child, it’s a means of motivation, if you work hard and do well in school; you know that a lot of your college costs have already been paid for. All-in-all, prepaid tuition means one less worry for a lot of middle class families.

Unfortunately, a number of these prepaid programs are being closed or slowly wound down. Many of them don’t have enough assets on hand to cover future liabilities, largely a consequence of greater than anticipated increases in tuition costs over the past few years. Because state lawmakers have decided to cut funding for higher education and instead raise current tuition rates, young families and future generations of college students are no longer able to save for college though prepaid tuition programs.


This is the perfect metaphor for the near-sighted nature of so many of our policy decisions today. As states have grappled with revenue shortfalls over the past few years, lawmakers have seen higher education funding as an easy place to eliminate resources.  As a result, tuition has increased dramatically. In the short-term, cutting funding helps close budget gaps, but in the long-term it’s meant closing the door for younger families, more often than not, families who otherwise would have a very tough times paying for college.

Did I mention that college increases your lifetime earnings dramatically? Or that people with more education, report higher levels of health, civic involvement utilize, less public resources, have lower crime rates? Yeah, all of that.

So, moving forward, I really wish we could look at the decisions we’re making in the present with a long-term lens in mind. As demonstrated by the potential demise of the prepaid tuition program, what’s easiest isn’t always what’s best.


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