College costs soaring — even for a 1-year-old

Psst, here's a tip: If you have children and want to make ironclad returns on your money -- without anyone named Madoff in charge -- the time to invest is now.

Because the rising cost of college tuition shows no signs of abating, even in the teeth of a recession, the state-backed Guaranteed Education Tuition (GET) program has proved a smart investment over the years.

But the bad economy is taking its toll. The program invests what participants pay in. Its assets, about half of which are in stocks, have dropped to a value equivalent of 88.7 percent of future liabilities -- the worst showing in the program's 11-year history -- and could fall even more as universities try to patch ravaged budgets with tuition increases.

The program is underwritten by the state and therefore can't fail. But organizers warn that the cost of buying a year's worth of tuition in advance will jump at least $700 -- and perhaps much more -- on May 1. The extra money is needed to shore up GET's finances and offset tuition increases.

Betty Lochner, director of GET, said the program remains financially stable and has enough money to pay all obligations for 15 years. But, she said, two or three years of unpredictable tuition increases would spell trouble and could force the state to rethink the deal offered to new participants.

When University of Washington President Mark Emmert was grilled by a state Senate committee last week on what effect tuition hikes beyond the current 7 percent cap would have on GET, his reply was that GET was a program "worth saving."

"The challenge, of course, is that you can't set a policy that will keep the GET program solvent by making the universities and colleges insolvent," Emmert said.

He said similar programs in other states have needed to change investments, reset base assumptions or change the payout for new entrants: "Any number of those kinds of scenarios, I think, are going to have to be looked at under almost any model" in GET's future, Emmert said.

The premise of GET is this: Prepay one year of tuition for your child at roughly today's rates and the state guarantees your child can cash in that year whenever he or she is ready to attend college, regardless of the cost later. The benefit can be transferred to almost any college in the country.

If tuition rises 7 percent every year -- the increase allowed by state lawmakers the past few years -- that's roughly the rate of return on a GET investment. But UW and other universities are seeking authority to increase tuition without legislative approval and are considering much larger increases to offset state budget cuts.

Kirkland couple Shaun and Suzan Flanders signed up their 1-year-old daughter, Makena, in November, prepaying her freshman and sophomore tuition at a cost of a little more than $15,000.

"It wasn't our entire nest egg, but it was a relatively significant amount for us," said Shaun Flanders, a marketing manager with AT&T. "If you believe the state's guarantee, then it's an almost risk-free investment worth 7 percent."

Flanders said it's difficult to guess whether GET will beat the stock market over time, given that there are so many years before Makena will begin college.

But, Flanders said, he and his wife now are considering buying tuition for Makena's junior year before the price of GET spikes in May.

The Flanders aren't alone in seeking a safe harbor for their money. GET spokeswoman Susan Martensen said call volumes are up 20 to 25 percent over the same period last year, while rollovers from other so-called 529 college savings plans are up close to 60 percent.

The number of participants also has been rising fast and soon will top 100,000. Martensen noted that new participants will need to open an account by March 31 to take advantage of current prices, and another price increase could come as soon as September.

Nick Perry: 206-515-5639 or nperry@seattletimes.com