NASHVILLE — Tennessee has stopped the sale of prepaid college tuition units under the Baccalaureate Education System Trust program.
There are 9,043 current participants, and those enrollees will continue to receive their tuition payouts. But they can’t buy additional units and no new enrollees will be accepted, The Commercial Appeal reports.
State Treasurer David H. Lillard Jr. suspended new purchases after the program’s board of trustees approved it Monday afternoon.
The program allowed the purchase of tuition units at current rates, which were redeemed when the beneficiary later went to college.
The BEST program was envisioned to be self-sustaining, but has needed $40 million in state funding in recent years because investment earnings haven’t kept pace with tuition payouts. That total includes $14.75 million this year.
“I believe the prepaid tuition program was started with good intentions,” Lillard said. “I do not believe it would be wise to potentially put future taxpayer dollars at risk by expanding the program.”
The prepaid tuition program was created under the assumption that tuition would rise at an annual rate of about 6 percent and earnings on investments in the program would rise about 7.5 percent a year, said Steve Curry, assistant to the state treasurer.
Curry said tuition has risen at an average rate of 9 percent per year while earnings on investments have gone up 21/2 percent annually.
The program was launched in 1997 under a law sponsored by former state Rep. Dan Byrd, a Democrat. The Bartlett banker noted that wealthy people have no problem paying for higher education tuition, and those who are poorer receive probably 95 percent of the available aid.
“But people who are working and saving a percentage of their funds for their children’s higher education really will be left without an opportunity if we eliminate these type programs,” Byrd said.
The stoppage does not affect the BEST program’s separate college savings program, Path2College 529 Plan. It is a tax-sheltered college savings plan, and Lillard is emphasizing it as an alternative.