New fee added to Tennessee’s prepaid college tuition program

The “actuarial soundness” fee of $3.71 per tuition “unit” is on top of a $2.10 administrative fee that has been charged, at lower rates, since the program began in 1997.

Combined, the fees made up almost 12 percent of the $48.96 purchase price of a single unit between Aug. 1 and Dec. 31. The purchase price jumped to $50.80 on Jan. 1.

State Treasurer Dale Sims, who administers the Baccalaureate Education System Trust program, or BEST, said the new fee was necessitated by a gap between tuition inflation and the program’s investment earnings.

BEST allows anybody to pay for future college tuition for children at today’s prices. Participants buy “units” — one unit is 1/100th of the average annual tuition and mandatory registration fees at Tennessee’s four-year state universities. It would take, for example, an average of 100 units to pay the tuition and registration fees at a typical state university.

Higher tuition schools like the University of Memphis and the University of Tennessee, Knoxville, would require more units. Although units can be used to pay dormitory and meal plan fees, they are not figured into the price.

About 8,600 people are enrolled, and BEST now has nearly $55 million in assets. Another 3,400 are enrolled in BEST’s separate money-market fund, more of a savings program with no tuition guarantee. It is not affected by the new fee.

The unit price is adjusted Aug. 1 and Jan. 1 of every year to reflect increased costs. The program has always charged a fee to cover the costs of running the program, as required by the statute that created the program. But the new fee was added Aug. 1.

BEST’s board decided in July to impose the fee because investment earnings were not keeping up with rapid tuition increases. Under state law, BEST must operate with no taxpayer subsidy.

The fee drew the ire of some BEST participants who said it was levied without notice. Sims said he intends to improve communications with participants.

Unless enrollees checked the program’s Web site, their first notice of the new fee was a footnote on their annual account statements in late December. Enrollees who have made no new purchases since July 31 won’t be affected until they buy more units. But those who have, including those buying units through payroll deduction and bank drafts, have paid the fee.
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On the Net:
www.treasury.state.tn.us/best
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Information from: The Commercial Appeal, http://www.gomemphis.com