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Pay Now, Learn 15 Years Later, Colleges Urge

January 18, 1987|BOB SECTER | Times Staff Writer

LANSING, Mich. — Sometime in the spring, Randy Dietrich hopes to take out a loan to cover his daughter's college tuition costs. In the fall, 5-year-old Heather Dietrich will enter the first grade.

Dietrich, laid off not long ago from his Lansing-area construction job, is not just being overly nervous about his child's future. He is planning to buy into an innovative new state-run pay-now, learn-later scheme that could save Michigan parents thousands of dollars on diplomas for youngsters who have yet to graduate from diapers and cribs.

"I don't know what college tuition's going to cost when she finishes high school, and I don't have the willpower to put the money away by myself," Dietrich, 30, said. "I'm on unemployment now and just scrimping by, and I don't want my daughter to have to do that. If I had gone to college, I would have had a better job."

Part Layaway Plan

Approved last month by the state's Legislature, the Michigan program--part layaway plan, part mutual fund--offers parents steep tuition discounts if they pay ahead of time. The younger the child, the cheaper the price. The program represents the latest and most sophisticated financial wrinkle at institutions where cash used to grow as lush as the ivy on the walls.

No longer. The Reagan Administration has drastically slashed federal funds for loans and scholarships, the new tax law is expected to put a crimp in charitable contributions to academia and the aging of the baby boom generation portends significantly declining enrollments in coming years.

"Higher education is in a weak market right now, and they're doing what they can to sell it," said Richard Anderson, a Columbia University professor who is studying prepaid tuition plans.

Over the last two decades, Anderson said, the average rise in tuitions has outstripped inflation by nearly 50%. The nation's most prestigious private schools now average annual tuitions of more than $11,000, and the present pace of increases, if not abated, could shoot four-year costs to well over $100,000 by the turn of the century--and that does not include fees, books or accommodations.

Few schools carry price tags quite so lofty, but experts say many facilities--especially private schools catering to largely regional student bodies--fear that high tuitions could further squeeze enrollments and damage the quality of education.

A handful of private institutions such as Pittsburgh's 4,000-student Duquesne University has already set up prepayment plans designed largely to lure alumni into sending their children back to their alma maters with cut-rate tuition guarantees. The New York-based Fred S. James & Co., a large insurance broker, has gone into the business of marketing such tuition plans and has already signed up Duquesne and 10 other universities and colleges.

Deluge of Inquiries

Meanwhile, Michigan officials have been deluged with inquiries from other states and at least a half-dozen legislatures around the nation are considering similar plans for their state school systems. On Thursday, Assemblyman Tom Hayden (D-Santa Monica), a University of Michigan graduate, introduced a bill to adapt a Michigan-style prepaid tuition program to California's higher education system.

"Our mission is to provide families not only with a guarantee of tuition but peace of mind," explained Michigan Treasurer Robert Bowman, chief architect of the state's program. "Parents will no longer have to turn around as their kids are growing and say: 'How are we going to pay for this kid?' "

Although precise rates have yet to be determined, state officials estimate that an investment of as little as $2,500 on behalf of an infant born in 1987 could buy four years of tuition that might cost $23,000 or more when the child reaches college age in 2005. Randy Dietrich might be able to pay off Heather's tuition for as little as $3,500. Parents short of cash will be offered the chance to finance the tuition much as they would a car, paying on the installment plan or even through payroll deductions.

Must Meet Requirements

Revenues from the sale of guarantees will be deposited in a large state-administered mutual fund, which will then be tapped to cover tuition payments for participants. As in the case of Duquesne's program, Michigan students still must meet academic requirements to get into college, though the state will refund slightly more than the original investment if a child does not go.

Around the nation other fiscal experiments also are under way. Many universities now allow students to pay tuition in installments rather than requiring it all up front. Other schools have begun charging different tuitions for different majors, based either on the costs involved in teaching the program or projected earnings of graduates. An engineering curriculum would cost more than liberal arts, for example.

Some marketing schemes seem inspired; others display all the subtlety of K mart "blue light" specials. Programs include:

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