Many families concerned with the unpredictability of future tuition rates in Illinois have turned to pre-paid tuition programs, hoping for some kind of guarantee they will be able to afford their children’s tuition when the time comes.

The Illinois Student Assistance Commission, or ISAC, launched College Illinois!, the state’s 529 Prepaid Tuition Program, in 1998. The oft-criticized program has been suspended in the past and now is struggling to find new contract buyers who are looking to pre-pay future students’ college expenses.

Now facing lagging sales of new contracts, the program is facing the possibility it could be out of money by 2026.

A cash infusion in excess of $108 million in 2025 would be required to sustain the program, according to an actuarial soundness valuation report provided to College Illinois! in June 2015 by Gabriel Roeder Smith & Company, an independent consulting and actuarial firm based in Chicago.

ISAC Executive Director Eric Zarnikow said more than 70,000 contracts have been sold and more than 30,000 students have gone to college using College Illinois! benefits since the program’s inception.

“The program has been challenged over the years by the Great Recession and double-digit tuition inflation,” Zarnikow said. “More recently, contract sales have been impacted by lack of trust in the state as a result of the ongoing fiscal crisis.”

The program halted for more than a year after a 2011 Crain’s Chicago Business investigation revealed the risky nature of the $1 billion investment fund supporting the program, which relies substantially on hedge funds and other alternative investments.

Four years after the program reopened, it sold 473 new contracts by the end of May, 2016 when the current sales season ended – a 27 percent drop from last year’s 646. And in 2014, the program sold only 438 new contracts, Crain’s reported.

To support future obligations, the program must sell more than twice the number of new agreements it sold in 2015 – 1,500 new contracts annually, according to the commission actuaries' projections. Without a dramatic increase in the number of sold contracts, Gabriel Roeder Smith & Company’s report estimates that College Illinois! is in danger of running out of money in 10 years.

Robert DiMeo, co-founder and managing director of Chicago-based pension consultant DiMeo Schneider & Associates LLC, used the program for his two sons, but said he would think twice about the program now.

“Certainly, when I look at the financial condition of the state – and then I think it is widely known that the financial condition of this program is not optimal – yeah, I think that would cause a participant or a potential participant to pause and at least gain a better understanding of all of that,” he said.

Zarnikow, however, has said families have little cause for worry because prepaid tuition program funds are held separately in a trust fund at the Northern Trust Company, “and by law can only be used to pay plan benefits and operate the program.”

“All financial plans, however, including College Illinois!, involve risks,” he said. “With respect to College Illinois!, the state of Illinois has a moral obligation requiring the governor to request funding from the Illinois General Assembly in the event it is determined that the program does not have adequate assets to meet its contractual obligations in an upcoming fiscal year.”

Zarnikow added that the General Assembly has a moral obligation to bail out the program if it is determined it does not have adequate assets to meet contractual obligations – but it is not obligated to provide funding.

“What’s more likely is that the state has an obligation, and if the money is not available someday in the future, there will be discussions by the legislature about subsidizing the program,” said state Sen. Jason Barickman, R-Bloomington.

The Republican lawmaker noted that any program that “relies on a sale tomorrow to pay a debt of today is fundamentally flawed.”

“I firmly believe that the state needs to offer college affordability programs that allow low, middle and other-class families to plan and save responsibly for college, especially these days when we’re dealing with staggering tuition costs,” Barickman said. “But in doing (so), the state has to be financially responsible to taxpayers, too.”

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