bill introduced Wednesday would limit the extra dollars Virginians must pay to fund prepaid college savings plans — an attempt by two House Republicans to make college slightly more affordable.
Del. Steve Landes, R-Weyers Cave, one of the bill’s chief sponsors, called it a “common-sense proposal that will have an immediate and significant impact on families’ bottom lines.”
“Despite the fund being 138 percent funded, Virginia529’s leadership has continued to charge a 10 percent pricing reserve,” Landes said in the release. “The Prepaid529 program was created to make higher education more accessible and affordable; we should be striving to do that at every opportunity.”
The agency Virginia529 allows families to set up different kinds of savings plans for college. Savings funds are exempt from federal taxes, and contributions to the account are eligible for a state income tax deduction.
Prepaid529 is the plan that Virginians can use to prepay one to 10 semesters of college — a cost of up to $67,800. To help cover tuition inflation down the road, those who pay for the plan are also responsible for a 10 percent “pricing reserve.”
That reserve is supposed to be a buffer so that these savings plans are not underfunded.
The reserve pricing, plus strong stock and bond markets, have helped fund the prepaid plans to 138 percent of projected future costs.
But in June, the Joint Legislative Audit and Review Commission said that a 10 percent pricing reserve was too high, especially since the plans were funded beyond what was needed. Landes is the vice chairman of JLARC.
“Higher education tuition costs have outpaced wage growth drastically over the past decade, making it more difficult for hard-working, middle-class parents to afford to send their children to college,” said Del. Tim Hugo, R-Fairfax, the bill’s other sponsor, in the news release. Hugo is also the chairman of the House Majority Caucus.
Landes’ and Hugo’s bill would lock that pricing reserve to 5 percent or less if the prepaid plans are funded more than 105 percent. For context, that’s estimated to save eight-semester plan-holders at least $3,000, according to estimates in the news release.
If the plans are funded at 105 percent or less, the bill proposes that the pricing reserve can be raised up to 10 percent.
The bill caught Virginia529 CEO Mary Morris by surprise on Wednesday. She said the proposal could be a risky move.
“105 percent — right off the bat, that’s too low, I would say,” Morris said.
In actuarial terms, funding 100 percent of expected future costs actually means there is a 50 percent chance you’ll have enough money to pay for college, because college tuition rates are in flux, Morris said.
Morris said her board had planned to discuss potential policy changes later this month, and she was not expecting legislation any time soon.
The bill would also require Virginia529’s governing board to give a “detailed” written explanation of any change to the pricing reserve, within 30 days of a change, to JLARC, the House Appropriations committee and the Senate Finance committee.
Gerica Goodman, policy director for Virginia21, welcomed the bill. Her group aims to get students and young professionals involved in the civic process. College affordability has become the biggest issue that Virginia21 pushes for.
“Obviously we are very appreciative of Del. Landes’ efforts to increase college affordability and make sure Virginia families are not priced out of higher education,” Goodman said.
Morris said her group is hoping to have discussions with lawmakers about this soon.