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Texas rolls out new prepaid plan

(September 12, 2008) - The state of Texas and OFI Private Investments Inc. have launched the Texas Tuition Promise Fund, a unit-based prepaid plan for Texas residents.

The plan sells units in three pricing levels. Level I tracks tuition and fees at the most expensive Texas public institution; Level II tracks the weighted-average tuition and fees at all Texas four-year public institutions; and Level III tracks the weighted average tuition and fees at all Texas two-year junior colleges and technical schools. Each unit represents 1% of annual tuition and mandatory fees, and the value is transferable to any Texas public university or college the beneficiary decides to attend.

Units may be redeemed for their “transfer value” if the beneficiary attends a private or out-of-state school or are rolled over to another 529 plan, or for their “refund value” if redeemed for other reasons. The transfer and refund values are capped under formula and are likely to be less than full redemption value at a Texas public institution.

Texas law shifts the tuition risk associated with the new plan to the state’s public universities and colleges, thereby reducing the need for a program reserve and allowing the program to peg unit prices at current tuition levels. In 2003, Texas suspended enrollment in its first prepaid plan, now called the Texas Guaranteed Tuition Plan, when rapid tuition increases caused by the deregulation of Texas public schools put the program fund under severe financial stress.

The Texas Tuition Promise Fund is accepting enrollments through February 28, 2009, with payments first due on May 1, 2009.

For more information, click here.

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