College Savings Programs At Risk for Running Out of Money

The state-supported savings programs that were designed to assist Tennessee families to cover the rising cost of college tuition are being hit hard by the poor economy, and there is one that could go bankrupt within the next ten years.

The savings plans or prepaid tuition programs have been used by thousands of families in Tennessee to ensure their children’s future college educations. The downturn in the stock market has officials in the state scrambling for ways to save the programs.

The Tennessee Baccalaureate Education System Trust, BEST, lost nearly 19 percent of its value in 2008, leaving it with enough money to cover a decades’ worth of tuition expenses, but some of the program participates will be attending college after that. This means that the state of Tennessee will run out of money if action is not taken. In these prepaid tuition plans like BEST, when the families prepay the tuition, the fund puts that money paid back into the stock market with hopes that the investment return will be higher than the tuition rate increases. Critics say the current economic crisis brings the inherent weakness of these programs to light and that relying on the stock market is not a wise plan.

Kevin Carey is the policy director of Education Sector and warns parents to be very careful when considering using a college savings plan. He says these funds are high risk, very vulnerable to market swings and are mostly used by affluent families who are very capable of saving for college on their own.

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