Texas lawmakers adjourned without fixing the state's prepaid college tuition program, which now faces a $600 million shortfall and could go broke as early as 2014 by some estimates.
If that happens, state taxpayers may have to cover the shortfall because the state constitution guarantees payment to those who bought in.
"This thing is going to smack everybody in the face," said Keith Oakley, a former state representative who supported the fund's creation and bought contracts for his children. "I just don't know when."
The issue didn't get traction in the legislative session because the state's budget shortfall loomed large over many issues and programs.
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"Everything was put on hold because of the financial crisis the state was facing," said Oakley, who serves as legislative director for the Tomorrow Fund Families, which is working to help families who rely on the contracts.
The fund, originally the Texas Tomorrow Fund and later renamed the Texas Guaranteed Tuition Plan, was originally designed to help middle-class families afford college.
It stopped accepting new contracts in 2003, but still has about 89,700 active ones. Those contract holders are guaranteed that the contract will cover tuition and mandatory fees at a public university or could be used at its full value at a private university.
The fund had thousands more contracts in the summer of 2009, when the Texas Prepaid Higher Education Tuition Board, mindful of a growing shortfall, said refunds would be limited to the actual amount people had paid in, minus administrative fees, rather than the full value of the contract.
In many cases, the contracts had more than doubled in value because of tuition increases at state universities.
Approximately 7,400 contracts were canceled as families rushed to cash out their contracts before the new policy took effect, because of the potential that their student would opt not to go to college, would graduate early or would receive full scholarships.
By the time the state reversed its stance in September 2009, there were about 109,000 active contracts remaining.
In reversing the policy, the comptroller's office, which administers the fund, had said it expected an interim legislative study would result in recommended fixes. Some state lawmakers also said the issue would be addressed in this year's legislative session.
But there was no funding recommended in this cycle to address the shortfall, according to the Legislative Budget Board.
Nor did the Legislature address tuition deregulation at public universities, which was largely blamed for creating the shortfall.
At Gov. Rick Perry's urging, the Legislature in 2003 decided to cut state support for public universities while allowing the board of regents at each to set tuition rates.
Perry said that the universities could then attract more students by lowering tuition in some fields and raising it in others, depending on demand.
"They are not going to price themselves out of business," Perry said at the time. "The market will work."
Tuition costs skyrocketed, though. From fall 2003 through fall 2010, the statewide average total academic charges for a student taking 15 semester hours at a public university has increased by 83 percent, according to the Texas Higher Education Coordinating Board.
To address the shortfall, some legislators called for a look at tuition deregulation this session, saying rates had gone too high. Attempts to reach several legislators for comment about this issue were unsuccessful.
Stock market downturn
Also to blame for the shortfall was the fund's poor investment performance with the economic downturn, said R.J. DeSilva, spokesman for the state comptroller's office.
The comptroller's office didn't have the data available this week to determine how recent market improvement has lessened the shortfall, but at one point it was projected at more than $1 billion.
DeSilva said the plan's current unfunded liability should be available in the 2011 annual report after August.
The fund now has about $1.4 billion in assets, he said.
Because the program is constitutionally backed, the state would eventually have to devise a way to cover the shortfall, he said. "It's a legislative decision in terms of addressing it," he said.
The program began accepting contracts in 1996.
"When we created it, it was fiscally sound," Oakley said. "Everything was working just fine. It was just a wonderful program to help middle-income people."
Oakley's association continues to work to inform affected families about the issue.
Since the group doesn't have access to the contract holders' names, it continues to ask contract holders to seek them out through word-of-mouth, social media and news reports.
Oakley said families who opted to pay for the program monthly continue to make payments as their children continue through high school.
This report includes material from the Star-Telegram archives.
Diane Smith, 817-390-7675