— MONTGOMERY, Ala. (AP) — The financial outlook for Alabama's prepaid-college-tuition plan has turned around since the state's highest court ruled the program can pay tuition at fall 2010 rates rather than current rates, a financial expert said Wednesday.
The court ruling has changed the Prepaid Affordable College Tuition plan from being in serious financial trouble to being in a position where it could have money left when the last student finishes his eligibility in 2032, said Dan Sherman, CEO of Sherman Actuarial Services.
Sherman outlined the improved financial standing Wednesday when PACT's board held its first meeting since the Alabama Supreme Court ruled last month the program could pay tuition at fall 2010 rates. Those reduced payments will start with the summer term, said State Treasurer Young Boozer, chairman of the PACT board.
Robert and Joyce Bradley of Homewood, who have seven grandchildren enrolled in PACT, said they are pleased the program will continue, even with reduced tuition payments.
"We believe this is the best possible and only solution to ensure the majority of the contract holders can get the most they can get," said Robert Bradley, who wore a green T-shirt saying "Save Alabama PACT."
Boozer said he had mixed emotions. He said it's not what participants expected, but it's the best way to give participants as much as possible.
Boozer said he plans to seek re-election as state treasurer next year and hopes to stick around four more years to make sure PACT remains stable.
For nearly two decades, the PACT program allowed a family to pay a fixed amount to enroll a child and then upon graduation from high school, the child got four years of tuition at a state university or a similar amount at a private or out-of-state college. PACT's board invested the money and used the earnings to pay tuition. The program ran into trouble five years ago when tuition increased faster than expected, the recession caused the value of PACT's assets to plunge, and many of the early participants reached college age.
PACT quit taking new participants and the Legislature agreed to shore it up with $547.6 million in payments between 2015 and 2027. But PACT's board soon realized even that was not enough money to meet its obligations.
With PACT on the verge of collapsing, the board and most PACT families reached an agreement for PACT to continue, with tuition paid at fall 2010 rates instead of current rates. Some parents sued, but the Alabama Supreme Court upheld the reduced payments in April.
PACT has 33,224 participants, with 10,573 enrolled in college during the spring semester.
The board paid full tuition for the spring semester, but will pay fall 2010 rates for the summer term. Students attending in-state public colleges and universities will get whatever the schools' fall 2010 tuition rates were, and the students will have to make up the difference. Students attending private or out-of-state colleges will get $228.74 per credit hour and $144.45 in fees.
Sherman said the PACT board could end up with $85 million left in 2032, when the last student should finish his college eligibility. Boozer said the settlement gives the board the authority to increase payments above the fall 2010 level, and he hopes that can be done several years down the road. According to Sherman's estimates, the program will begin building a surplus in 2020.
That's a big turnaround from last fall, when he predicted its liabilities could exceed its assets by $605 million if it kept paying full tuition.