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Legislators are weighing what to do with a $1 billion surplus from Virginia’s college savings program

Virginia State University, a historically-Black school in Ettrick.
Virginia State University, a historically-Black school in Ettrick.(Source: VSU)
Published: Jul. 9, 2021 at 8:30 AM EDT
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A Virginia college savings program has accumulated more than $1 billion in surplus revenue — money that could potentially be reinvested in financial aid and other higher education initiatives.

Lawmakers directed the Joint Legislative Audit and Review Commission, a state watchdog agency, to study the possibility after reviewing a regularly scheduled audit of a now-discontinued program known as Prepaid529, which stopped enrolling new participants in 2019. The investment fund allowed Virginians to purchase semester-long contracts that covered future tuition and fees at both in- and out-of-state schools.

“We believe there’s a substantial amount of that surplus that can be used for other purposes,” JLARC Director Hal Greer said at the commission’s Tuesday meeting. Auditors projected the excess revenue could swell to $3.8 billion by 2044 when the program is estimated to pay out the last of its remaining contracts.

Some of that overfunding has been by design. Enrolling in Prepaid529 locked-in tuition rates at the time of purchase and worked somewhat like a 401(k), with contributions pooled into a larger investment fund. Each contract had a built-in premium to make sure the payouts reflected future inflation or tuition increases.

“It’s really critical that the fund is always in a good position to pay out future obligations,” said Jamie Bitz, JLARC’s chief legislative analyst for ongoing oversight. But funding for the program has also factored in projected tuition increases and inflation rates that are “at the high end” of reasonable assumptions, according to auditors from Gabriel, Roeder, Smith & Company, an independent firm that analyzed the program.

Historically, the state has funneled extra revenue from other investment plans — specifically CollegeAmerica, a similar tuition savings program offered through a private mutual fund company — into Prepaid529. That, coupled with higher-than-expected returns, has contributed to the growing surplus, JLARC analysts found.

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.(Virginia Mercury)

The Virginia Mercury is a new, nonpartisan, nonprofit news organization covering Virginia government and policy.

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