DATE: Wednesday, October 29, 1997           TAG: 9710290016

SECTION: LOCAL                   PAGE: B10  EDITION: FINAL 

TYPE: OPINION 

SOURCE: BY PAUL A. HAVELES 

                                            LENGTH:   59 lines

VIRGINIA'S PREPAID-TUITION PLAN

Over the past several years, Virginia experienced unprecedented growth in the cost of a college education. Parents and students have vociferously complained.

Virginia has listened and come up with a program which, on the surface, looks like a good deal: the Virginia prepaid education program.

A parent can pay for his child's college at today's prices and let the state worry about the growth in tuition costs. Let's look at this program in a little more detail.

Virginia has already started taking other steps to rein in tuition growth. Gov. George F. Allen started capping tuition increases at 3 percent. Then he convinced the legislature to freeze tuition for three years.

Both candidates for governor have indicated that they support continuing the freeze in tuition. If the freeze continues, the rate of return for the prepay program will be zero. This could make this program a windfall for the state.

As an example, the current contribution for an infant is $14,660. The state will be investing these funds in some manner. Using a rate of return of 7 percent, this account could be worth $46,118 in 17 years. Current college tuition averages $16,800 for four years. If the state keeps tuition hikes at 3 percent over the next 17 years, four-year college tuition will be around $27,767. If this is the case, tuition will be paid for by the state, and it will keep the balance of $18,351.

The program has no provision for covering the costs of room, board, books or other expenses. These currently average $4,500 per year. These costs are not being controlled by the state and could continue to grow at past rates (approximately 9 percent). Thus, parents participating in this program will still have to be ready to spend around $20,000 per year to cover these expenses.

If your child does not go to college (except for reasons due to disability or death), you will receive only your payments back, less fees, and no interest. If the child enters college, there are two scenarios.

If your child stays in Virginia, and goes to a private college, you will receive payments equal to the actual interest earned on your account, or the tuition rate at the most expensive Virginia public college. Whichever is less!

If your child leaves Virginia, you will get payments equal to the actual interest earned on your account, or the average cost of Virginia public colleges. Whichever is less!

If the state invests your funds and gains a better return than the growth of tuition, it keeps the balance. In both cases, if tuition at the actual college attended is higher, the parent will have to make up the difference.

The plan will be counted as an asset and may disqualify the student for any type of financial aid that he might have otherwise received.

In any year that you make contributions to this program, you will be unable to make contributions to the new Educational IRA, established by Congress.

Parents who are concerned about funding a child's education can achieve more personal control and flexibility through a plan of their own. MEMO: Paul A. Haveles is a professional financial planner in Virginia

Beach. He has worked with college-bound students since 1984.

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