NEW YORK - In the last two decades, more than a million families around the country have invested in state funds that pledged to cover the cost of attending their state’s public colleges and universities, regardless of how much tuition increased.
But in the last year, the stock market slump and rising college costs have combined to drive all but two of the nation’s 18 such funds, known as prepaid college savings plans, into the red, jeopardizing those pledges.
Even with stock market gains since March, the losses have forced some programs, like Pennsylvania’s and Washington’s, to impose new and higher fees that could amount to thousands of dollars a year in additional costs to parents.
Others like South Carolina’s have capped how much a family would get if the program shut down. West Virginia had to pump $8 million into its prepaid program to help restore its financial health because its fund lost 25 percent of its value in the last year.
Alabama closed its program to new enrollees because the fund lost almost half of its assets, more than $300 million in the stock market in the last year, and the state may have to put its own money in to keep it solvent.
“I think ultimately more and more of these plans are going to close down to new investments,’’ said Mark Kantrowitz, the founder and publisher of FinAid.org, a student financial aid website.
Several states, including Massachusetts, back their prepaid college savings plans with the full credit of the state and guarantee families’ tuition percentages.
The 18 state funds serve nearly 1.6 million families and hold $23.8 billion in assets.
