GET unit price takes huge leap

As a follow-up to my September 8 column in The News Tribune (see below), here is some more detail about the new unit price to participate in Washington’s Guaranteed Education Tuition (GET)  program.

The 2011-12 purchase price for one GET unit is $163.  One hundred units is the equivalent of one year of tuition at a Washington state university (though the account value can be applied to any accredited institution of higher learning). I was conservative in the article suggesting that the new price would be north of $130, “possibly well beyond.” I didn’t want to present too shocking of a figure and have it turn out to be off base.  I wouldn’t have been surprised by $150 but $163 is a big leap. Of course, the price is dictated by a massive spike in tuition rates at Washington state schools.

Considering that the payout value for participants redeeming their GET units this year is $102.23, the new purchase price includes a 59% premium over today’s tuition rate. And if you buy units with a periodic payment plan that includes a 7.5% program fee, the premium you pay goes up to 66.5% over today’s actual tuition cost.

If tuition costs advanced at 8% per year, catching up with a 60% premium would require six years before you broke even. Therefore, you wouldn’t want to invest after your child was 12 years old if you intended to start redeeming units at 18. If units will be used over four years, you could actually invest beyond 12 and still expect to catch up with the premium before the student graduated. Since Washington state school tuition inflation has been closer to 16% than 8% over the past three years, the breakeven period would come quicker, just a little over three years.

The GET unit price for the 2008-09 enrollment period was $76. In four years, the cost has gone up 114.5%. Over the six years previous to 2008-09, GET units increased in price by just 46.15%.

The biggest challenge to the state will be generating enough new interest in the program so that the funding model remains viable. Investment returns alone will not support continued elevated tuition inflation. Over time, more new participants may be required to provide cash flow for students currently redeeming their units.

If the high price of GET units leads to fewer participants, the programs sustainability will be challenged.

~ Gary Brooks — Brooks, Hughes & Jones, Partners in Wealth Management, Tacoma, WA