PACT program on shaky ground
Amid concerns over the fiscal health of the Prepaid Affordable College Tuition Programs, the board of directors will hold a public hearing Thursday from 1:30 p.m. to 4 p.m. at Frazer United Methodist Church in Montgomery. Director of the Alabama Commission on Higher Education Dr. Gregory Fitch said the board would listen to participants’ concerns before deciding how to proceed.
“I think they should be concerned,” Fitch said.
Parents contribute funds to PACT to cover the future cost of instate tuition at any public two-year college or four-year university. The board of directors invests these funds into the stock market, while the return offsets tuition increases.
However, with a slumping stock market, the value of PACT’s investments dropped 45 percent since September 2007. Assets, which totaled $900 million in 2007, are now worth $484 million. For the first time since it was implemented in 1990, the state-run program faces the challenge of remaining afloat.
State treasurer Kay Ivey sent letters expressing her concern to 48,000 families last week. Lawmakers across the state spoke out last week. While the state is not legally obligated to save the floundering program, Rep. Artur Davis said in a press release that students should not be punished due to government failures.
“While Alabama is not well poised to assume any new financial obligations, I hope the PACT board and the state’s leaders will remember that PACT has been advertised for years as a reward for prudently investing in a child’s future,” Davis said.
Davis suggested a couple possibilities for the program’s future. First, allowing parents to opt out of PACT in exchange for a one-time tax credit against the full or substantial value of their PACT contribution. Davis also said students who are enrolled in college should receive a partial guarantee on their PACT contract.
“It would be a cruel blow to parents and students to allow PACT to fail at a time when families are struggling more than ever to meet the demands of rising tuition.”
Auburn University’s Student Financial Services office received an avalanche of phone calls from the school’s 2,600 participants after Ivey’s announcement. Director Mike Reynolds said the school has not received official word from the treasurer’s office regarding the program’s future.
“We certainly are in hopes that the leadership will find a way to get it back,” Reynolds said.
Reynolds said there were misconceptions about exactly how PACT operates. He said Auburn University bills PACT for tuition costs, instead of billing individual students. While PACT proved reliable its first 19 years of existence, Reynolds said his office encourages students to apply for other forms of financial aid, too, including Pell Grants and students loans.
“We encourage students to fill out the FAFSA regardless,” Reynolds said. “Any incoming freshman, they’re eligible for $5,500 in a loan, period.”
Reynolds said this advice has not changed with the stock market either. He said a troubled economy only makes a financial safety net more important. For the 2008-2009 school year, Reynolds said PACT paid every Auburn participant’s bills.
“The only thing I know is that PACT is concerned,” Reynolds said. “That’s the message I’m getting.”
At Wallace Community College Selma, the message is not so bleak. Director of financial aid Endora Todd said her office has not received any phone calls from the schools 20 to 30 PACT participants. Todd said she believes the state will take action to right the programs before it is too late.
“Alabama has a reputation for being fiscally conservative,” Todd said.
Todd disagreed with Davis’ comment that PACT was advertised as a virtually risk-free program. She said the program’s document clearly explain risks involved with the investments.
“I would see it upsetting parent and students,” Todd said. “However, I don’t think it was advertised in a risk-free manner.”
Regardless of how the program was advertised, University of Alabama accounting assistant Lin Hayes said the office of student financial aid received its share of phone calls last week.
“I’ve been swamped with phone calls,” Hayes said. “It seems like every time I turn around someone’s calling.”
Hayes, like others in financial aid offices across the state, does not have much to tell concerned parents or students either. Like PACT participants, Hayes said she is pulling for the program. PACT pays tuition for about 2,600 students at the University of Alabama. She said the worst thing participants could do at this point is pull their money out of the program.
“PACT is a good thing,” Hayes said. “It’s just like everything else. Everybody’s just had a bad day. PACT has fell with everybody else.”