The state of Florida has had a prepaid college plan in place for its citizens since 1987. It has been a model for other states in years past, and for many years was considered a bargain, because parents (or grandparents) could “lock in” tuition rates of today for their kids going to school in the future. It’s ideal for those who aren’t sure what scholarship options are available to them. However, the affordability factor has officially gone out the window, because of a law put in place by the Florida State Legislature in 2009.
Prior to 2009, state universities and colleges were prohibited from increasing tuition costs by more than 5 or six percent in one year. The new legislation allowed colleges to increase their tuition rates by up to 15% each year. That’s caused a dramatic price increase to the once hugely popular prepaid plans, because with tuition rates increasing so dramatically, The Florida Prepaid plans have had to increase the enrollment fees to ensure the program’s sustainability over the long term.
Excuse me? Did you say $49,000???
The Florida Prepaid College Plan enrollment period begins this week, with families being able to purchase plans between now and January 31, 2012. It’s a pretty fair bet that enrollment numbers will be way down, because the purchase price of a program for a baby born after September 1 of this year and going to college in 2030 is (drumroll, please) $49,292.84, if it’s paid in a lump sum. If parents choose the 5-year payment plan, they’ll be paying $918.30 a month for the next 55 months, for a total payment of $50,506.50. They can also choose to pay a lower monthly fee for a much longer period of time: $297.90 a month for about 14 years. The payment plans include an average effective interest rate of 3.95%.
The price increases have given new meaning to the words “sticker shock.” Spokeswoman Susan James of Prepaid says that they realize “families are having difficulty managing their finances,” so they are offering a variety of plans, including a two-year college plan that only costs $50 per month, over more than a decade of payments.
While it’s admirable that the Prepaid Plan program is attempting offer a variety of programs for enrollees, it’s not clear whether or not people will see the value in paying such a large amount of money into a state-run plan rather than investing the money on their own in a private 529 account. Many people may also feel that the program isn’t really offering a level playing field or a value for the money spent, because the prices have increased so dramatically in just the last few years. In 2009, the most popular plan purchased cost $40,086, and last year the price increased again to $45,367. That’s a far cry from what lucky parents in 2006 paid: $14,616. That’s an incredible 71% increase in five short years. Enrollment in the prepaid program has decreased as a result of the pricing increase; the first year of giant increases was in 2009. Enrollment was down 47% for that year, and there’s no telling how low the enrollment numbers will go this year.