State primes new plan for saving for tuition

By BARRY KLEIN

© St. Petersburg Times, published December 26, 2000

Every holiday season, grandparents around the state get a frustrating lesson in the rules of Florida's prepaid tuition program.

By law, the plans are open only to Florida residents, which means any grandchild who lives out of state is out of luck.

"We have to explain that to hundreds of grandparents every year who want to give the plans as gifts," says Colleen Englert, the program's spokeswoman.

That's about to change.

The program is now taking bids from companies that want to manage its newest offering, which officials hope to have on sale no later than this spring.

The new plan, which works much like a mutual fund, will not include the tuition guarantee that has helped sell 600,000 prepaid contracts since the Florida program debuted in 1988. But it offers buyers considerably more flexibility.

It won't have a residency requirement, which is good news for those frustrated grandparents. It also won't have income limits.

But most important, customers who buy the new plan won't have to use them at Florida colleges and universities to get their full benefit, as is the case with prepaid contracts.

Money saved through the new plan can be used to pay for higher education expenses at any qualified school in the United States, says Stanley Tate, the program's founder and chairman. Tate tells customers to think of the new offering as a complement to the older plans, not a replacement.

Prepaid plans allow buyers to lock in future expenses, including tuition, housing and fees, at today's prices. But that covers only about half of the costs -- now estimated at about $11,000 annually -- of a university experience in Florida.

The new offering takes care of that problem by allowing buyers to save for other items, Tate says. It also allows families to save for private or out-of-state colleges, where costs are typically much higher.

Program officials warn that accounts opened under the new plan will fluctuate in value depending on market conditions. That warning seems especially appropriate this year, when many stock indexes are suffering their worst performance in a decade.

The program expects to offer customers several investment options, each based on a different mix of stock and bonds. And like the prepaid plans, all earnings will be tax-deferred.

Englert said officials have several details to work out, including the minimum contribution that will be required to open an account and the maximum that can be invested. Similar plans available in other states allow customers to invest at least $100,000 per account.

Also uncertain is whether customers who purchased prepaid contracts will be allowed to convert them. "We're still checking with the IRS on that," Englert said.

Interested?

For information about all the plans, call (800) 552-GRAD (4723). The deadline for purchasing a prepaid contract that locks in this year's prices is Jan. 26.

For information: Florida Prepaid

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