So it looks like all that legislative and editorial handwringing over the solvency of the state’s pre-paid tuition program, the Guaranteed Education Trust, turned out to be for naught, what with the State Actuary’s report (PDF) today that that the GET program in its current form has only a 0.7 percent likelihood of insolvency over the next 50 years.
In fact, one of the more interesting observations in the report is that “solvency results are very sensitive to changes in assumed purchaser behavior,” meaning that changes to the program, like say, reduced benefits, that lead to lower participation, could actually increase the chance of insolvency over the long run.
The key to maintaining solvency, according to the report is to price future GET units with an accurate “long-term tuition growth assumption,” which, it turns out, is pretty much what I described last week in suggesting that our state “Lawmakers Don’t Seem to Get GET“:
So I say we should just stick with what we have, and let the fund’s actuaries reprice the cost of buying into the program to reflect the new reality of annual double-digit tuition inflation.
But I’m just some dumb blogger, so what do I know? Still, if lawmakers are still concerned about the state’s potential liability, they might want to come up with a long-term policy toward tuition, instead of just winging it from year to year.
Oh, and one more tidbit. GET’s actual investment returns between June 30, 2010 and February 28, 2011? 18.35 percent. Not too shabby.
But if they don’t cancel GET, how can they make us redirect the funds to More Roads And Tunnels?
You act as if the State Constitution says that Education is the primary goal of our State or something …
You sound like one of my coworkers who brags about the same ROI bullshit with his kids’ GET accounts. Yeah, sure, not too shabby unless you’re just starting in the past couple of years.
Last year it was $101/credit, this year it’s $117. And that $101 in 2009 was a 13% jump from $78/credit in 2008. The maximum amount of credits per account is 500. To achieve that by the time a kid turns 18, one should be purchasing at least 28 credits/year (rounding up). So, for someone starting in 2009 (like me), they would have to have laid out at minimum $2828 (I couldn’t swing that, so now I’m going to have to make up for it in later years for my kid). This past year (before April 30), the same amount of credits now costs $3276.
Even assuming just the 8.9% average tuition increase over the past 10 years advertised in GET’s own product literature (a laughable assumption), by the time you’re purchasing the last 28 credits in the kid’s 18th year, a credit will cost something like $530. That’s almost $15k in a single year, and an overall outlay in the neighborhood of $145,000. That’s just for the distinction of completing an undergraduate degree at WSU or UW. Double all of those numbers if you’re contributing to two kids’ accounts. Better start working that second job or count on 10% annual pay raises.
This shit is just plain unsustainable and is a slap in the face to anyone who believes in “public” educational institutions. I foresee a tuition crash somewhere in the next decade. Then you can kiss all those sweet returns goodbye.
Solvent for 50 years? There is no one alive who will be using GET 50 years from now. Can you buy these things for the unborn?
@2 You don’t need 500 when they’re 18.
You need 100 when they’re 18, 100 when they’re 19, etc.
Also, as you approach the year in which they’ll actually start going to to school, you’re better off switching to a different investment; e.g. tax-exempt bond funds averaging even 3% are probably a better deal than GET units with a 36% price premium built in and a 7-year time frame.
(all this is assuming that annual tuition increases go back to historical levels of 7.5% per year)
GET units make sense up until your kid is 13 or so (and at that point you should only be buying units for their last year or two). They’re also a nice way for families to guarantee the return they need.