Illinois' prepaid tuition plan struggles as college costs soar

[The Straight Story]

Illinois' prepaid tuition plan struggles as college costs soar

llinois' prepaid tuition program, a 12-year-old financial plan enabling children to attend state colleges at today's prices when they have grown up, has the deepest shortfall of any such fund in the United States and is plowing money into unconventional — and some financial experts say high-risk — investments to close the gap.

The deficit of the College Illinois Prepaid Tuition Program also is far larger than the fund is declaring. Administrators recently adopted new calculations that mask its size.

The performance of the $1.1-billion fund is crucial to ensuring that the prepaid plan's nearly 55,000 family participants get what they have paid for. That's because, unlike in five other states, Illinois doesn't promise to bail out the fund if it runs short of cash, contrary to what even some savvy investors and financial planners think. Instead, state law requires only that the governor ask the Legislature for help if the program can't meet its commitments. Lawmakers are under no obligation to act.

"If you did a survey of the people who own one of these (prepaid tuition contracts), they'll think it's backed by the full faith and credit of the state of Illinois," says Peter Babich, a Downers Grove financial planner with about 250 clients and $80 million in assets under management.

Read more: http://www.chicagobusiness.com/article/20110305/ISSUE01/303059975/crains-investigation-illinois-prepaid-tuition-plan-struggles-as-college-costs-soar#ixzz1FxVWZ5e9