Tuition Scam: Pre-Paid Tuition Programs (529s)

Who benefits from tuition-saving accounts? The poor? The middle-class? The upper-class? Consider a timistic analysis within one simple consideration: College costs have and are expected to rise faster than the rate of inflation--WSJ. The latter means that

  1. If it cost 1000 lifehours to fund college today, future college costs will exceed 1000 lifehour,  let's say 1100 lifehours.
  2. If some people are able to lock in the cost of college at 1,000 lifehours, that means those who cannot pay tuition today will have to make up the difference, e.g., 1100 + 100  = 1200.
  3. Suppose the government picks up from general revenues the administrative costs of these tuition programs.
  4. Suppose the governor decrees that because of a booming economy that a special $300 rebate should be given to the tuition pre-payers as happened in Virginia.

A couple of questions:

  • Do you think the 12,000 tuition pre-payers in Virginia are the wealthiest or poorest Virginians?
  • Do you think the pre-payments are for the middle-class or upper-crust colleges of Virginia?
  • If the Virginia economy goes into a recession, will the $300 rebates be paid back to the state?

Regarding these questions, a telephone call to the office was met with "We are not allowed to give out that information." Virginia has a most interesting college tuition program. It was sponsored by a state legislator who, when the program passed, placed his wife in charge of the program. Are the constant barrage of expensive T.V. adds self-paid or paid political advertisement?

What does this all mean? : The poor and the middle class are subsidizing the college education of the wealthy. General tax revenues pay the administrative costs of a program used primarily by the wealthy. When the wealthy use their pre-paid tuition credits, the non-wealthy will have to pay the tuition difference. Fewer of the poor will go to college. If you think tuition costs are high today, wait till you have to also pay for the tuition of the wealthy.

Pre-paid plans of any kind are examples of Saltwater Policies, that is, they taste good at first when one is thirsting for a problem-solution, but in the end they worsen the problem.


Dear MH,

Here is a story you might find worthy. It is not a summer story. Like my solar shades, it affects many, perhaps you. Here are the facts with my conclusion:

  1. All pension funds, public and private, are increasingly underfunded because of the drop in stock values.
  2. Most states, cities, and corporations are not making the required contributions to pension funds which further erodes the ratio of funds to pension obligations.
  3. Education saving funds used to be open only a few months each year for new enrollees. Now you see ads on tv on a regular basis encouraging people to sign up. Why?

Why? Like all funds relying on Wall Street funds, the 529s are heading toward bankruptcy. The only way to keep their head above water is to get new enrollees. This is a legal Ponzi scheme: The first in are being financed by new cash inflows. The new enrollees are not going to get anything unless the politicians fund the 529s with tax dollars.

Compounding and worsening the problem is not only how out-of-state institutions low-balled the costs of buying a 4-year degree with the result of the fund being sucked dry sooner. In other words,

Quality Control Tools for Higher iCube ... Frog Leaping.
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