More than 30,000 families with state-run pre-paid college tuition plans now have a clear idea of how much interest their contributions will earn.
Treasurer Dereck E. Davis (D) on Monday announced a plan which attempts to make good on promised interest for some contributions. It also ends interest accrual for contributions no later than next July.
“We just didn’t have a lot of time. We knew that and we were working in expedited fashion,” said Davis. “Hopefully, with today’s announcement and the things that we were able to do, we provided some clarity. In terms of moving forward, we’ve hopefully put some things in place that’ll keep the program solvent and we can close this chapter of how the program worked and brighter days are ahead.”
In the end, the roughly 31,000 prepaid college tuition accounts will be the last as the state will offer only investment plans, which function similar to a 401k, in the future. (The state’s existing College Investment Plan was unaffected by the issues plaguing the prepaid program.)
Davis said there was no evidence of criminality found during his office’s review of the trust.
The announcement is a significant step in resolving issues that plagued the prepaid college fund. The fund allows families to ease the burden of college expenses by locking in today’s tuition. Families pay the tuition in advance over a specified period of time.
“The issue was very confusing, but he came to a pretty simple solution,” said Cathi Forbes (D-Baltimore County) who was the lead sponsor of reform legislation in the House of Delegates. “This is a really good resolution.”
A year ago, the 529 board suspended its pledge to pay 6% interest to families holding those prepaid accounts because of what was called an accounting issue. That issue led to concerns that end-of-year statements were incorrect.
In some cases, accounts balances were shown to have doubled. In other cases, some statements showed balances lower than in earlier statements.
Gov. Wes Moore (D) signed legislation into law that abolished the 529 board and transferred responsibility of the program to the treasurer’s office. Davis’s announcement comes just 27 business days after the law’s June 1 effective date.
Under the treasurer’s plan, all contributions made before Nov. 1, 2021 will receive 6% interest retroactively.
Contributions made on or after Nov. 1, 2021 will be set to the annual earnings rate of a 10-year Treasury note. The rate will be set annually and compounded monthly. This will be in effect until July 1, 2024, the date benefits are withdrawn or the date of contract termination, whichever comes first.
Starting no later than July 1, 2024 all contributions and account balances will earn zero percent interest. The Office of the Treasurer will notify account holders 60 days prior to the ending of interest payments.
Still, some details have yet to be worked out.
For instance, balances that will be provided to account holders may look different from the 2021 statements.
“For some it could be higher, some it could be lower,” said Davis. “It’ll definitely be more accurate. And to be honest, that’s really my focus. I’d like it to be what everybody wants it to be. But more importantly, we’re hoping to get it to be what it’s supposed to be.”
The office has yet to set up a process for claims from account holders who believe the calculations are in error.
Davis said those claims would be paid for out of funds left over after the initial interest payments are made. Payments for any claims would not exceed money currently in the system.
“Everything that we will do will be within the assets of the trust,” said Davis. “We will not — and I can say that unequivocally — we will not be asking the governor and the legislature for a dime.”
The announcement was hailed by one group of account holders at the forefront of the push to resolve the issue.
“Today is a day of victory, but a long, overdue day. It’s a day many of us thought would never come, Brian Savoie, organizer of the Maryland Prepaid College Trust account holders group Free Our Interest Now, said in a statement.
Savoie, who was traveling out of the country, praised Davis for taking “clear and unequivocal action.”
“The treasurer still has work to do,” said Savoie in his statement. “Now that the decision has been made, swift action is required. In less than 20 days, the vast majority of tuition bills will be due. We have already waited too long for nothing more than what was in our contracts.”
Approximately 11,500 accounts belong to families with children who are college age, according to the Office of the Treasurer.
“We’ve already started the manual calculations on it, that’s why I know it’s roughly 11,500,” said Davis. “We’re getting a head start jump on them now so that when we are at that point, we can quickly go ahead and implement the process for them so that they can do rollovers or tuition payments, whatever the case may be. We can have that ready for them first.”
Davis said he knows some account holders were hesitant to touch the principal while the interest rates were in dispute. He said parents should not hesitate to withdraw the money if they need it.
“If you need your money now, or if you need some money now, by all means start that process,” he said. “Your interest is coming. You’re not in any way jeopardizing it. We have the numbers now. So, if you take it out, you aren’t going to come up short, because it wasn’t there.”