Report: College Illinois! could need $1.6 billion bailout
Kimberly Godden, a Ukrainian Village lawyer, says she was “outraged” to learn the program may not have money for her daughter Hannah.
Updated: January 15, 2012 8:11AM
Illinois’ financially tanking prepaid college tuition program could require a $1.6 billion bailout from the state to remain solvent during the next 25 years, a new study shows.
If state lawmakers do nothing to prop up College Illinois!, the fund could be drained completely by 2022, financial consultant Gabriel Roeder Smith & Company reported in its analysis for the Illinois Student Assistance Commission.
The report, made public Monday, says if no new contracts are sold going forward, the shortfall will develop between 2022 and 2036 to pay for past contracts coming due. The contracts are supposed to allow parents to pay in advance and lock in lower tuition rates for their children to attend state schools, including the University of Illinois.
Kim Godden, a lawyer who lives in Ukrainian Village, said Tuesday she was “outraged” to learn that there might not be any money by the time her daughter, Hannah, needs it. Godden, 38, enrolled her daughter in the program a month after her birth in 2007.
She said she did her homework before buying the contract to be sure she wasn’t making a risky investment, but figured her monthly $400 payments were safe.
“I said, ‘I’m guaranteed,’” Godden recalled thinking. “‘I don’t have to worry about fluctuations in the stock market.’”
The commission, which runs the program, placed new contract sales on indefinite hold on Sept. 30.
“Until policy makers determine what changes they want to make to the program, the agency believes it is in the best interests of potential contract purchasers to wait until changes are made,” commission spokesman John Samuels said.
Gov. Pat Quinn told reporters Tuesday that he supported the commission’s decision to suspend the sale of new College Illinois! contracts but gave no other clues about what steps need to be taken to right the fund’s finances.
“We’re going to have to roll up our sleeves. I really feel strongly about the importance of access to college and reducing the bite it takes on many students’ wallets when they have to go to college. That’s an issue we’re going work on in the coming years,” the governor said when asked about the report’s findings and whether College Illinois! can remain a viable program.
“We’ll come up with a plan, a rescue plan, to make it better,” Quinn said.
State Rep. Jim Durkin (R-Western Springs), who has a College Illinois! contract for his daughter, said the report underscores the need for the Legislature to take decisive action when lawmakers return to Springfield early next year.
“Part of our job is to fix problems,” he said. “There is a problem. I think we can turn this around.”
Durkin said he is working on legislation to submit next year to make the program more transparent.
“We have to convince current contract holders this is still a safe investment and also need to make this an attractive plan for down the road,” Durkin said.
Godden said she is confident any problems will be resolved: “I have faith the state will back their commitment to me, and I hope I’m not disappointed.”
The program has been in existence since 1998 and had 54,275 prepaid tuition contracts as of March. But since a series of questions have arisen about the program’s financial stability during the summer, the sale of new contracts has slowed to a trickle.
Since July 1, less than 200 College Illinois! contracts have been sold. By comparison, 1,819 contracts were sold during the 12-month span between July 2010 and last June, Samuels said.
The consultant also reported the fund was nearly $560 million in the red as of last March, the consultant reported.
The value of the assets in the prepaid tuition program stood at $1.29 billion as of March. But by October, the market value of those assets had dropped to $1.09 billion, the agency disclosed.
Still, in a letter to contract holders, commission Interim Executive Director John Sinsheimer and board chairwoman Kym Hubbard noted that the $1.29 billion portfolio is 69.8 percent funded, a “slight improvement from the 68.6 percent reported as of June 30, 2010. This is much stronger than any of the State’s pension plans and many corporate pension plans.”
The current shortfall, is “almost entirely offset by better than assumed investment returns and tuition fee increases that were lower than anticipated,” Samuels said. “The plan continues to meet all of its financial obligations.”
The agency also announced the hiring of a new chief investment officer, Kent Custer, a former senior investment officer at the state Teachers Retirement System.