SC prepaid college tuition program at a crossroads

According to current estimates, South Carolina’s ambitious prepaid college tuition program will run out of money in 2017 and that has State Treasurer Converse Chellis concerned. He has written leaders in the General Assembly and the governor about the program. Chellis says he is not trying to sound an alarm that there is an immediate problem, but he wants legislators to start developing future plans to fulfill the obligations the state made to more than 6100 parents who have invested. Chellis says the program was hit by a double whammy of the recession and a double digit increase in tuition costs at state colleges.         
“Tuition was not expected to go that high and at the same time we had a kind of  economic meltdown over the last several years. The tuition going up double of what we expected really hurt. One or two digits above what we expected, we can handle that but when it jumps up double digits of what you expect, it’s impossible to outrun that climb.”    
In 2007, the state legislature added $20 million to the program and closed it to new entrants.  The payment plan was created to allow parents to secure four years of college at a state supported institution for their children at the 10th grade level or lower at existing tuition rates. Chellis says a climb out of the recession would be a great help to the program. “For example, before the recession hit our unfunded portion was only around $30 or $32 million. It is now double that to around $65 million. That alone (an end to the recession) would reduce it significantly as we go forward.”  
Chellis says parents may withdraw from the program and receive four percent interest on the money they initially invested in the program.
Chellis says moving forward decisions must be made on changes in the investment strategies for the funds already invested in the program. “As we start running closer to less money, we need to start moving those funds over to less aggressive stocks—thus having a lesser return on that money and that will affect us a bit. We are now in a kind of catch-22 situation in how we want to allocate our investments. Right now we are 60 percent in equities and 40 percent in fixed income type investments.”  
Chellis says lawmakers created the program with the intentions of promoting higher education and making college more affordable for parents. Chellis says he feels that lawmakers will follow through on the obligation they made to those who have invested in the program.
“I think morally that have some kind of conviction there that they really need to see that they made a promise to these parents. All along they have been trying to promote an affordable college education for students and this was one way they come up with back, I guess, in the mid 90’s. They just did not expect the extremely high double digit increases in tuition costs at local colleges,” Chellis says.
Lawmakers currentlyhave no plans to end the program, which would mean that those that have invested in the program must be paid back with four percent interest. Chellis says lawmakers could go to the state schools and ask for help in keeping tuition costsdown or go to a pay as you go plan by paying the obligation each year out of the general fund with the estimated costs per year estimated to be $20 million.
Chellis estimates about a third of the youngsters enrolled in prepaid tuition are currently in college and the numbers will decrease over the next few years. “A large portion coming due will be in 2010. I guess that will be around 400 or 500 and it will start dropping off from 400 down to about 50 students in 2022.”