PA. COLLEGE TUITION State to put premiums on savings plan

The fund did see an investment gain but not enough to reduce the gap.
HARRISBURG (AP) -- The state will begin charging premiums of up to 9 percent on its guaranteed college savings plans Sept. 1 to ensure that the program can weather lagging financial markets and sharp tuition increases in the long term, Treasurer Barbara Hafer said Wednesday.
The TAP 529 Guaranteed Savings Plan allows investors to buy one or more years of future college tuition at this year's prices. The premiums will apply to contributions made on or after Sept. 1.
The value of the fund's assets was $605.5 million as of June 30, falling about 8 percent short of the projected $658 million value of its liabilities.
Although the fund saw an investment gain of 3.9 percent and tuition inflation was about what the department had anticipated, the gain was not strong enough to begin reducing the program's funding gap, Hafer said.
"In the last few years, the combination of a bear market and high tuition increases has made it impossible to generate returns in excess of the tuition increases. Premiums effectively give the investment managers a head start in the race," she said.
Varied premiums
The premiums vary by school, with higher surcharges applied to schools that have significantly raised tuition over time, Hafer said. They will be added to rate increases that reflect higher tuition rates adopted for the 2003-04 school year.
Families who save at the Lincoln University rate will not have to pay any premium, for example, while those who save at the Penn State University rate will pay a 9-percent surcharge. A 1.8-percent premium will apply to a future semester of tuition at any of the 14 State System of Higher Education universities.
The state has been paying out about $19 million annually in college costs, so it could still meet its obligations "for years and years to come," even without a surcharge, Hafer said.
"We have decided to act now to make sure we don't have a problem develop in the future. And the way we do that is by reinstating premiums," she said.
The department initially imposed yearly premiums of up to 15 percent when the program was created in 1993 to build up a reserve fund that would cushion the plan against a market downturn. Hafer lifted the premiums in 1998 after a strong investment return created a surplus in the fund.
Pennsylvania is one of 20 states with prepaid tuition plans, says the College Savings Plans Network.