SENATE BILL REPORT

SB 5057

BYSenators Rinehart, Bauer, Saling, Bailey, Patterson, Smitherman, Cantu, Stratton, Owen, Metcalf, Murray, Pullen, Conner, Sellar, Thorsness, Kreidler, West, Rasmussen, Wojahn, Gaspard, Smith, Sutherland and Vognild

Creating a higher education trust.

Senate Committee on Higher Education

Senate Hearing Date(s):January 25, 1989

Senate Staff:Shawn Newman (786-7784)

AS OF JANUARY 23, 1989

BACKGROUND:

Tuition at state colleges and universities has tripled over the last ten years making it more difficult for families to afford higher education.  Nationally, charges have risen 113 percent at public colleges and 152 percent at private colleges between 1977-78 and 1987-88.  These increases surpassed the rise in the Consumer Price Index, which was about 85 percent during the same ten-year period.  Concern has been raised that financial aid has not kept pace with these increased costs.

SUMMARY:

The higher education trust fund is created to allow persons to contract for future undergraduate tuition payments at state institutions of higher education for any child who is a state resident.  Contracts cover a specific number of credit hours of tuition and include a specific number of credit hours a beneficiary may receive if he or she is not entitled to resident tuition rates at the time of admission.  Contracts may apply to any state community college, college or university but may not exceed the number of credit hours required for a baccalaureate degree.  Neither admission, continued attendance, or graduation is guaranteed. 

The State Treasurer offers at least two types of plans.  Plan A allows for a lump sum or a series of payments and a refund based on the face amount, less administrative fees and interest.  Plan B allows for the same except that interest is refundable.  Payment schedules may be based upon the tuition costs at a particular state institution or at the state institution with the highest tuition rates.  The form of any contract must first be approved by the Higher Education Coordinating Board and the State Board for Community College Education.

Payments received from the sale of these contracts will be deposited in a trust fund to be administered and invested by the Treasurer.  The trust fund will be used to pay tuition, make refunds, pay administrative costs and, if funds are sufficient, provide for fee waivers to needy students.

Should a beneficiary decide to attend an in-state private institution, a refund, not to exceed the average tuition costs at the state four-year institutions, may be transferred to the private institution.  If the beneficiary dies, fails to get admitted to a state institution or decides, after reaching the age of majority, not to attend a state institution, a refund, not to exceed the lowest tuition costs at the state four-year institutions, may be paid.  The Treasurer may approve substitutions for the original beneficiary.

Except for contracts which are terminated after graduation from a community college, there is no right to any refund if the student completes more than one-half of the credit hours required for a baccalaureate degree.  If contractual benefits have neither been used nor terminated after a number of years specified in the contract, all rights to the benefits will terminate and the assets will revert to the trust fund.

Each year the State Treasurer will prepare an accounting and the State Actuary will evaluate the actuarial soundness of the trust.  If funds are insufficient, subsequent purchasers will have their payments adjusted.  If there are insufficient numbers of new purchasers, trust assets will be immediately prorated among the existing contracts and applied to pay tuition or refunded.

Before entering into any contracts, the State Treasurer is required to solicit and make known the status of ruling requests from the Internal Revenue Service and the Security and Exchange Commission.  The Treasurer will also adopt rules and work with private sector investment managers and in-state private institutions to study the feasibility of instituting tuition prepayment programs between these parties.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested January 16, 1989