Friday, January 11, 2013

GET in Danger in the Legislature

David Goldstein over at The Stranger Slog lays out the case for the GET (Guaranteed Education Tuition) program.  The legislators who are talking it down are - no surprise - some of very legislators who have turned on their own party, Rodney Tom and Steve Litzow along with Ross Hunter.  (And, as Goldy points out, some live in some of the most expensive areas of Washington State.) 

GET is Washington's prepaid tuition program, a variant of the federally sanctioned tax-free "529 plans." Families buy their children college credits at today's prices, plus a (sometimes hefty) premium, and then cash out in the future, tax free, at the value of the tuition and fees at Washington's most expensive university. One hundred GET units equals a full year of tuition and fees, and the current $172 unit price represents a 39 percent markup over the University of Washington's $12,401 tuition and fees for the 2012-13 academic year. Tuition can't (and won't) keep rising at 20 percent a year forever, so as an investment, GET isn't particularly a very good value at the moment; there are many other financial instruments that promise a higher rate of return. 

But what GET does buy participants—what no other college savings plan can possibly offer—is peace of mind. As its name implies, GET is guaranteed, backed by the full faith and credit of the State of Washington to deliver the college credits purchased.

Those legislators are saying Washington State shouldn't be in this business.  You mean the business of affordable college educations for its citizens?  And they miss this point that Goldy makes:

The return on investment is her education, not the dollar value of the tuition. 

How did GET get on faulty financial footing?

To be clear, GET's financial problems are not due to financial mismanagement. GET's investment portfolio took a hit like everybody else did during the recent financial meltdown, but has since recovered along with the markets. GET's shortfall is due to the fact that it was structured to anticipate 7 percent average annual tuition hikes rather than the double-digit increases of the past four years. It is the legislature that is responsible for GET's hole, through years of higher education funding cuts, not GET. Lawmakers understood this consequence when they allowed tuition to spike.

Other problems:

Some lawmakers would like tuition to rise substantially further—a high tuition/high financial aid model that might make reasonable sense if we'd actually fulfill the second part of that equation (which we don't)—a policy to which GET is a major impediment. Tom and others also lament GET as an obstacle to moving toward "differential tuition" pricing, a model in which universities charge more for certain high demand/high return majors like engineering and business management. I suppose the arguments for such "reforms" might be genuine, but they're hard to see as much more than excuses for further cutting state support of higher education, shifting more of the cost onto the backs of students.

He seals the deal:

No, GET isn't the solution. It's only an economic salve for those fortunate enough to have the spare cash on hand to invest in it. But GET isn't the problem either.

The problem is a political establishment that has gutted state higher education funding in the name of "fiscal conservatism." It's not GET that needs to be eliminated; it is those who are unwilling or incapable of seeing its value.

3 comments:

Anonymous said...

This guy seems like a real bonehead. For starters: Tuition can't (and won't) keep rising at 20 percent a year forever, so as an investment, GET isn't particularly a very good value at the moment; there are many other financial instruments that promise a higher rate of return.


Really? I went to college back in the 80's and they said the same thing. "It can't keep going up like this." And yet, it has, everywhere. OK. So 20% is truly excessive, but what about 10%? As far as the financial investment value of the GET not being an absolutely great investment??? What? It is unbelievable that anybody would fail to recognize the HUGE value in a guaranteed return on investment. Guaranteed! Got that? Sorta like T-bills, which are paying what? Less than 1%. With the GET, you get more than 10% for the forseeable future.. and that is GUARANTEED. If you bought in a few years ago, you have a tremendous rate of return, even if you don't care about the education at all. You could even sell it. Really, I think GET is a great idea. However, it is a real luxury and I can see why the legislature would want to cut it. At least they were smart enough to add the premium a few years back.

-parent

Anonymous said...

We invested the same amount for each of our children, one in the GET program and one in a 529 plan ... eight years in the GET is valued at much higher than the 529.

NW mama

Anonymous said...

Wish I had the money to invest in GET 5 years ago, but we didn't, so we are going the 529 route. I sure wish our state had a good 529 available for families who choose this option. Instead I have been investing my money in Utah's program at the advice of a financial planner who was not convinced GET was such a good deal, especially now. Plus, I am a parent who believes that community colleges provide a great education so if my kids want to start out there and save money that way I am all for it.

Realistic Mom