Two years after it was frozen to most investors, Washington’s prepaid-tuition plan opened this week to parents who want to start a new account or add to an existing account by prepaying for college tuition.
However, the state board that oversees the Guaranteed Education Tuition program (GET) is not yet ready to roll out a separate so-called “529” savings plan, the details of which are still being hammered out. (The number 529 refers to the section of the federal tax code that allows states and state agencies to create college-savings plans.)
Meanwhile, the state Auditor’s Office decided to audit the program after a former GET employee asserted that GET was mismanaged and that it overcharged some of its investors.
Michael Bennion, a former GET associate director, alleges, among other issues, that GET has charged its investors excessively high administrative fees.
The Washington Student Achievement Council, which oversees the program, also requested an audit after Bennion made his concerns public, a spokeswoman for the Auditor’s Office said. The audit, called an accountability audit, is expected to be finished in May.
GET allows parents and grandparents to prepay the cost of college tuition. The money is invested in relatively conservative funds by the Washington State Investment Board, and account-holders are offered a guarantee that 100 GET units will cover the tuition and fees of the most expensive public university in the state — this year, that’s the University of Washington, Tacoma, with tuition and fees of $10,386 for in-state undergraduates.
GET was underfunded throughout the recession, largely due to unexpectedly large tuition hikes but also because of a plunge in stock values. At one point, when the program had an unfunded liability of $631 million, state legislators considered shutting it down.
Then in 2013, state legislators froze in-state tuition for two years, helping GET catch up. In 2015, legislators cut tuition, leaving GET with a large surplus. Also in 2015, the committee that oversees GET froze lump-sum sales of the units and gave investors a chance to pull out of the program without incurring state penalties, as it tried to sort through what price it should be charging for a GET unit.
Over the summer, the committee voted to recalculate the value of the units and offer investors a kind of stock split. Each customer who owned GET units previously now owns more GET units, but each one is worth less. The payout value of a GET unit, which was frozen at $117.82 between 2012 and 2017, is now $103.86.
The plan reopened on Wednesday to people who want to start new accounts. It also reopened to people who already have an account and want to continue to buy GET units in lump sums, or want to establish new monthly contracts. (During the last two years, the only people who could put money into GET were those who already had a contract to automatically purchase a certain amount of GET units monthly.) The new price of a GET unit is $113.
GET has been a popular program, perhaps because it is similar to an insurance plan — one that guarantees 100 units will always be worth a year of tuition and fees at the state’s most expensive university.
But the Legislature has also asked the GET committee to create a 529 college-savings plan, similar to a Roth IRA, in which investors can decide how aggressive or how cautious to be with their investments. The committee is currently negotiating with a global-investments firm, BNY Mellon, to create that plan.
Many other states already offer 529 college-savings plans, and Washington residents can invest in any plan, not just the one offered in this state.