Prepaid tuition program loses money due to tuition increases

[June 27, 2012]  SPRINGFIELD -- Illinois' prepaid college tuition program has lost $68 million in a year, mainly because of the higher cost of tuition statewide.

The fund dropped from $1.13 billion a year ago to $1.06 billion at the end of May, despite investments turning a profit.

College Illinois paid out $92 million for tuition during the past year, while making just $25 million on its investments, according to a report presented at a Monday meeting of the Illinois Student Assistance Commission, which oversees the program.

The prepaid tuition program has been a source of consternation for legislators and parents because of controversial investment decisions and an unfunded liability of more than $500 million, or about 70 percent.

So far this year, investment returns are about 3 percent, much less than the 7.5 percent the fund predicted, according to John Samuels, spokesman for the Illinois Student Assistance Commission.

Samuels attributed the underperformance to "the overall weakness of the market."

The program will undertake an annual review of its assumptions at the end of its fiscal year, this month.

"It's possible that we'll be changing some of the assumptions in terms of what the market is showing," Samuels said.

Additionally, tuition for a year at a state university has increased by an average of 12.5 percent annually over the past decade, outpacing any gains on investments.

State Rep. Jim Durkin, R-Western Springs, has been a leader in working to reform the prepaid tuition program so that it doesn't become insolvent.

Durkin said the program needs a holistic approach to remain healthy, including universities.

"Universities cannot sit on the sidelines; they have to participate. At some point there has to be a broader discussion about how universities have justified increasing their tuition costs. You can't just say it's the Legislature's fault," Durkin said.

There will be talks between the tuition program and the universities this summer and fall to find some kind of solution to the increasing cost of tuition, Durkin said.

The program stopped taking new contracts last year after media reports about risky investments by the program and the size of the unfunded liability.

Samuels and Durkin say the prepaid tuition program could start selling plans again as early as this fall. New plans could bring in more money, but only if parents are willing to invest in a program that's had a rough few years.

"We will not let this program fail," Durkin said.

[Illinois Statehouse News; By ANDREW THOMASON]

Andrew Thomason can be reached at [e-mail].