Prepaid tuition woes?

The New York Times reports:

In the last two decades, more than a million families around the country have invested in state funds that pledged to cover the cost of attending their state’s public colleges and universities, regardless of how much tuition increased.

But in the last year, the stock market slump and rising college costs have combined to drive all but two of the nation’s 18 such funds, known as prepaid college savings plans, into the red, jeopardizing those pledges.

One of my favorite Kentuckians read that and asked "Is KAPT in trouble?" I looked, and here's what I found.

First, the background. KAPT is Kentucky's Affordable Prepaid Tuition Plan, which started in 2000 but has not taken new enrollments since 2005. KAPT offered three plans, designed to keep up with inflation on tuition at KCTCS, public universities, and in-state private schools, respectively. The Plan's assets consist of money families paid into educate their children, plus money earned by investing those dollars, and its liabilities consist of the obligation to pay tuition when those children are ready for school. The Kentucky Higher Education Assistance Authority administers the Plan.

Then, some numbers. The KHEAA audited financial statement shows that on June 30, 2008, KAPT had:

• $145 million in assets, including $130 million in investments.
  
• $181 million in liabilities.
• $36 million as its resulting deficit.

Shorter investment performance reports of "assets under management" since that date show:

• $ 131 million on June 30, 2008.
  
• $121 million on September 30, 2008.
• $103 million on December 31, 2008.
• $96 million on March 31, 2009.
• $103 million in assets as of June 30, 2009.

Of course, KAPT exists to pay tuition when the participants need it. Over the long-term, if the Plan doesn't enroll new beneficiaries, its assets should eventually be paid out. In fiscal 2007, KAPT paid out $10 million in tuition, and in fiscal 2008, that rose to $15 million. During fiscal 2009, the amount likely rose again as more participants reached college-age.

And yet, given the recession and what's happened to investments nationwide, I suspect that's not the main reason the assets dropped.

The 2009 fiscal year ended June 30, 2009, so a full KHEAA financial statement for that period should be out soon, offering a clearer sense of how serious the deficit has become.

Source note: the KAPT website offers both the KHEAA financial statement and the investment performance reports.