From the Sun Sentinel by Scott Travis
Newly passed legislation allowing some universities to charge whatever rates they want could spell the death of Florida's popular prepaid tuition program.
The bill, which awaits Gov. Rick Scott's signature, would permit the University of Florida and Florida State University to set their own tuition, rather than facing state-imposed caps. Other universities would get this authority if they're able to meet a rigorous set of standards.
"It will end the program," predicted Stanley Tate, a Miami businessman credited with starting Florida Prepaid. "The reason Florida was successful is it covered every school. If you have these differentials, where some schools accept it and others don't, it just won't work."
Q: Why do the changes in tuition create problems for Prepaid?
A: Prepaid historically has set prices by predicting what future tuition will be. Tuition used to go up 5 to 6 percent a year, and in recent years by 15 percent a year. Prices were set based on those assumptions. But if UF and FSU can charge whatever they want, Florida Prepaid has no way to predict what they will charge 17 or 18 years from now.
Frank Brogan, chancellor of the State University System, said in December Prepaid might not be viable in the future if it can't predict tuition increases.
Q: If Prepaid shuts down, what would happen to existing plans?
A: The program is guaranteed by the state of Florida, so if it folds, the state is contractually required to honor existing contracts or issue refunds with interest.
"I don't think anyone with an existing Prepaid contract should be worried," said State Rep. Marty Kiar, D-Davie. "I think the people who should be worried are those who want to buy a contract in the future."
Q: I already have a Prepaid plan. Will I have to pay more to attend UF or FSU?
A: For most people, no. The legislation requires the universities to honor existing contracts.
However, if you bought the plan between February 2007 and January 2010, you may be only partially covered, regardless of which university you attend. These were years when Prepaid sold "tuition differential plans" to cover tuition above the state rate. Only about a third of plan holders bought these, and those who didn't will likely be covered for less than half the tuition costs.
Q: How would Prepaid set plan prices in the future?
A: An actuarial firm would have to incorporate the legislative changes into future plan prices, Prepaid spokeswoman Susan James said.
Experts see three possible scenarios for future contracts.
1) Prepaid can offer a plan that covers tuition and fees for all universities except UF and FSU and require families to make up the difference in tuition when the child goes to school.
2) It can work out an agreement with the state or the universities to offer plans at a price that UF and FSU will accept. Those prices would likely be higher than the roughly $50,000 a year it currently costs for a four-year university contract.
3) It can decide the program isn't viable anymore and stop enrolling new participants.
"They could potentially split it into two or three plans, but it presents an accounting nightmare," said Bruce W. McNeilage, a Fort Lauderdale financial planner and former Prepaid board member. "I don't know if the Prepaid Board could overcome that."
Q: How do FSU and UF feel about Prepaid contracts?
A: Both have complained that current contracts don't cover the costs, and they are required to subsidize these students' education.
"We're losing about $6 to $8 million a year, and I don't think that's sustainable going forward," UF President Bernie Machen said. "I don't think that model will work, because you're not able to predict costs 10 to 20 years downstream."Q: If the universities are losing money on students with Prepaid contracts, is it possible they could limit enrollment of students with prepaid contracts or stop taking them all together?
A: FSU spokeswoman Browning Brooks said she's not aware of any discussions to do that. UF officials couldn't be reached Friday or Monday.
Q: The cost for a four-year university contract has risen dramatically in recent years. Has that affected sales?
A: Yes, Prepaid sales are half of what they were two years ago: 19,273 this year, compared with 38,567 during the 2009-11 year.
Q: Have Prepaid plans been challenged in other states?
A: Yes, several states have suspended or ended enrollment for new participants, including Alabama, Kentucky and West Virginia. Illinois recently suspended enrollments while it reviews the program's finances.
http://www.tcpalm.com/news/2012/mar/18/floridas-prepaid-tuition-program-could-end-if-to/
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