Barbara Palmer saw a way to solve one of a mother's worst nightmares. So she bought in on the deal.
She and her husband are paying the State of Florida $105 a month for the next five years. In return, their 6-year-old son, Ryland, will be guaranteed four years of tuition at any Florida college or university at which he is accepted, plus one year's dormitory fees.
"There's no telling what's going to happen to tuition," said Palmer, who lives in Tallahassee. "I've guaranteed my child will go to a Florida school, no matter what the cost."
Palmer is far from alone. Parents, horrified by predictions that today's infant who enters a private college in the year 2007 may need $150,000 to finish, are flocking to state programs that lock in the cost of college in exchange for an up-front payment.
Yet, as mothers and fathers seek security for their children and themselves, skeptics also are cautioning that such programs may be selling out the future, and that they do little to help the people who need it the most.
Arthur M. Hauptman, a Washington-based independent education consultant, calls prepaid tuition plans "a way of giving upper- and middle-class families peace of mind by giving them an insurance premium." Hauptman and others worry that the money invested now will not keep pace with rising college costs or that, worse yet, the states offering the programs will invest the money poorly.
"The thing that bothers me is that if tuition goes up faster than the investment, who pays for the difference?" he asked. The answer, he said, would be that states would be forced to dig into other funds to pay the difference.
Within the past few years, more than half the states have taken steps to help parents deal with the cost of higher education.
New laws in 10 states guarantee that tuition will be covered down the road on a pay-now basis. So far, only three of those states--Michigan, Florida and Wyoming--have actually implemented the program. Alabama is expected to become the fourth this spring.
For example, if the parents of a year-old child in Michigan put $7,904 into the state's prepaid tuition program, the child will be guaranteed full tuition and fees at any of the state's four-year schools when he or she is ready for college in 17 years. (Current four-year tuition at the University of Michigan for a state resident is $14,652.)
If the student wins a scholarship, or does not attend college in Michigan, a refund or transfer of benefits can be made.
Another kind of program, in which bonds are issued, is much more common. According to a recent survey conducted by the Denver-based Education Commission for the States, 22 states have approved issuing tax-free bonds and hundreds of millions of dollars' worth of bonds already have been sold.
The bonds do not have to be used for education, but that is how they are being marketed by the states. They have one clear advantage: many of the state bonds are not subject to federal taxes, while the profits from the prepaid investment could be liable to taxation.
The bond programs are less controversial than the prepaid programs, because they do not lock the states into covering excess tuition costs.
Hauptman and others fear that the prepaid programs might cause colleges and universities to drastically cut expenses, including teacher salaries, if it became clear that not enough money was going to be available from the prepaid pot.
That kind of talk makes Palmer, the Florida mother, bridle a bit.
"All I can say is that I'm trying to do some long-range planning for my family, and that if someone else doesn't, I shouldn't be punished for it," she said.
Limits College Choice
The prepaid programs also limit where a student may attend college, though there is some talk of reciprocal agreements among the states that have them.
"We all have hard choices to make in life," said Al Kaempfer, whose two small children are enrolled in the Florida program. "This may be one of theirs."
There is evidence that a prepaid tuition plan can work. Canada has had a government-sanctioned program since 1965. The largest program seller, Toronto-based University Scholarships of Canada, has more than $160 million in assets. The scholarship funds are open to anyone, including U.S. citizens.
As for the bonds, analysts point out that over the long term, other kinds of financial instruments would earn more money. As one put it: "If you are the kind of person who reads the Wall Street Journal every day, you probably don't want to buy these bonds."
Frank Resnick, a Connecticut bond buyer and director of fiscal affairs at Central Connecticut State University, concurred but said that the value of the bond programs is that they call attention to the need for saving.