Thursday, March 24, 2011

Get GET While the Getting is Good

According to the Times, the terms of GET (Guaranteed Educaton Tuition)  - the state's program for pre-paid tuition rates - may change soon under a bill in the Legislature.  This program has been and now, with looming changes, even more popular.  From the article:

The program is bringing in $1 million to $2 million daily and adding about 200 new families each day, on pace to be at or above the biggest year for the program.

Tuition is going up so fast the state may have problems paying out everyone in full.  There seems to be mixed messages on whether this will really happen or not.

The increase in GET purchases helps buoy the program financially, Lochner said, because it gives the state more money to invest. GET contains about $1.4 billion in assets, and the money is invested in stocks, bonds and other investments, much like a pension fund. There are nearly 129,000 GET accounts; a student can have more than one account.

Although the deadline for creating an account this year is March 31, investors have another month — until April 30 — to purchase credits at the current price of $117 apiece. One hundred GET units are currently worth the cost of one year of tuition and fees at the most expensive school in the state, which alternates between the University of Washington or Washington State University. This year, it's WSU, and each credit is worth $85.92.

State legislators are considering a bill, Substitute Senate Bill 5749, that would change the terms of the payouts. The legislation would not affect GET credits purchased before Aug. 1.  
Good advice:
 
Robin Tan, a certified financial planner in Kirkland, said investors need to be aware that buying GET credits today means paying a premium on current tuition prices. Because a GET credit purchased today for $117 is only worth $85.92 at today's valuation, an investor is, in effect, paying a 36 percent premium on today's tuition price and betting that tuition will rise beyond that point when his or her children are ready to go to college.

"The cost today is pretty high," Tan said. "There are not many investments where you put out 36 percent before you make a return."

For that reason, GET makes the most sense for families of very young children, Tan said. GET might not be the best bet if the student for whom the credits are being purchased is going to college in five or six years. "The older your child is, the less of a deal it is," he said.

3 comments:

Robyn said...

Be extra careful with the contract. It includes a 7.5% financing charge. So, on top of the required 36% increase in tuition to break even at the $117 per unit, college needs to increase by an additional 7.5%/year just to break-even.

gregf said...

Also be aware that a conventional 529 plan that earns 5% a year will more than double in a 15 year period, plus you get the advantage of having all the returns accumulate tax free.

Anonymous said...

The posters above are correct advising everyone to read the details of the GET contract, and really consider whether or not it is the best way for you to save for college. Many years ago I did choose to join, and for our family it has turned out well. But - those were different economic times. I knew there was a premium to be paid, but with 15 years before college, I was willing to pay the premium in exchange for security. Right now, who knows if the cost of tuition can or will keep going up - that's the risk you take. Very good idea to analyze this as a financial investment, and decide whether the risks (what might your returns be elsewhere? will tuition continue to go up? ) are ones you're willing to take.

Maybe yes, maybe no. It really depends on your personal situation.

MapleLeafMom