Steamboat Springs College tuition increases and a downturn in the stock market have Colorado families rethinking their choice to invest early in their children's college education.
The Colorado Prepaid Tuition Fund recently announced changes are on the horizon to maintain its financial stability and safeguard account holders' interests.
People who have invested in the program must decide if they will keep their money in the fund or pull out.
Rising tuition costs and a bear market mean the returns people expected might not hold true, State Treasurer Mike Coffman said.
"Given these possibilities, it's appropriate to take a prudent and cautious course and make these changes," he said.
Investors have until Feb. 19, 2003, to close their fund account if they want to get back the money they invested. Those who decide to close their accounts after Feb. 19 will likely receive less for their investments.
"We are really looking for a solution sooner rather than later so that our investors can make informed decisions," said Andrea Feirstein, spokesperson for the Colorado Student Obligation Bond Authority that administers the fund.
The fund's 8,000 investors have been contacted about changes in the program. The three-month window was provided to allow investors time to consider all their options, Feirstein said.
People who take their money out the fund still have options to keep the money working toward funding college tuition.
Account holders can transfer their money to one of CollegeInvest's five other funds known collectively as Scholars Choice.
Scholars Choice affords the same tax benefits as the Colorado Prepaid Tuition Fund.
Those who choose to continue with the program face a cumulative 5.5 percent annual cap on tuition increases covered by their contracts. Tuition in Colorado is uncapped and actual tuition increases could exceed that rate.
Investors' decision to take their money and run or stick it out won't affect the Fund.
"It doesn't help but it doesn't hurt," she said.
Doug Davis, a local investment representative with Edward Jones, said investors gain whether they stay or leave the program.
"You can take money out of the fund at no loss," he said. "That's amazing, given the market conditions."
Account holders who still want to keep their money working toward funding their children's higher education lose nothing by transferring to funds that offer the same tax benefits, he said.
"They've done everything they can do to make it a comfortable place to stay," Davis said.
The Colorado Student Obligation Bond Authority has committed $7.7 million to the fund this year to offset market losses.
"(The authority) does not, however, possess unlimited resources and cannot continue to inject additional money into the fund if negative market conditions persist or if tuition grows faster than it has in recent years," authority director Debra DeMuth said.
That's why the authority will ask state lawmakers to look at funding the program.
"There's a lot of different ways the Legislature could support the program in the future," Feirstein said.
But Rep. Al White, R-Winter Park, said he doubts the Colorado State Assembly would help the program. A tight 2003 budget leaves little room for such an expense, he said.
"In my estimation, it's unlikely that the Legislature will step in and fund the original guarantee," White said. "We simply don't have the budget to do it."
Feirstein said the authority understands investors' apprehension and intends to address all concerns and questions.
The authority will not tell investors what to do, she said, but will keep them abreast of what is happening.
"The best course of action is to talk to a trusted advisor," Feirstein said.
The Colorado General Assembly established the Prepaid Tuition Fund in 1996 to give families an opportunity to save for college education expenses.
The Colorado Student Obligation Bond Authority, which administers the fund, is an agency within the state Department of Higher Education.
An independent investment consultant and a nationally recognized actuarial firm with expertise in prepaid tuition programs advise the authority.
No more than 60 percent of investable assets are invested in equity investments such as stocks. Remaining assets are invested in fixed income instruments such as U.S. Treasury Bonds.
Investors should call (800) 478-5651 for more information.