This article is the second in a five-part series on growingdifficulties in financing a college education.

This Labor Day, while current college students are lounging bytheir barbecues, many future college students will lose another wayof paying for college.

The Texas Guaranteed Tuition Plan, a prepaid tuition plan thatallows parents to lock in college tuition rates at public schoolsfrom the moment they enroll, will stop accepting new investors asof Sept. 1.

In May, state comptroller Carole Keeton Strayhorn suspendedenrollment for the program in “the foreseeable future”after the state legislature voted to allow public colleges in Texasto set their own tuition rates.

“I do not anticipate starting another enrollment periodfor some period of time. Ordinarily, we would start that enrollmentperiod in November,” Strayhorn told The Dallas Morning Newsin a June interview.

Sixty-five students at SMU draw on funds from the TexasGuaranteed Tuition Plan to pay almost $141,000 of their collectivetuitions. Twenty-three students draw funds from similar plans inother states.

Twenty other states have similar programs and all are strugglingto deal with the effects of a sluggish economy, state budgetcrunches and rising tuitions at public colleges.

While plans in states like Colorado and Florida face the largestproblems, the comptroller’s office had concerns about theTexas plan’s ability to carry out its mission over the nextseveral years.

Prepaid tuition plans can be an attractive option to parentslooking to save for their child’s college education.

Since 1996, the state has sold 140,000 pre-paid tuitioncontracts that will pay for 160 hours of university education.

They offer people an opportunity to lock in the tuition ratesfrom the moment they start investing. Once their child reachescollege age, the plan will release the money originally investedplus the amount in tuition appreciation if he attends a stateschool.

If he opts to go to a private school or a public school inanother state, the plan will release all of the money paid into theprogram.

The plans invest money collected from participants in stocks andbonds and rely on investment returns to cover the differencebetween what is taken in and what is eventually paid out to covertuitions.

In theory, as long as the value of these investments rises morequickly than tuitions the plans can operate smoothly. However, thishas not been the case.

On one hand, the stock market has taken several hits over thepast few years and the economy has slumped. On the other hand, thisdive in the economy has restricted state budgets forcing manypublic universities to raise tuition rates to compensate forrestricted state funding.

As a result, the Texas plan has been assessed as “aprogram that will work for many people who fit the‘target’ profile but that contains potentiallysignificant problems or uncertainties that can hurt theunsuspecting investor” by investment experts atSavingforcollege.com.

The Colorado plan has had similar problems. Unlike the Texasplan, it is not insured by the state government.

As a result, nearly a third of the plan’s participantshave closed their accounts. The fund’s assets have declinedby almost 47 percent to $34 million from $64 million the previousyear, according to the plan’s accountants.

“I have a tough time seeing anything but benefit for us[though],” said Mike Novak, the executive director ofEnrollment Services and Financial Aid for SMU.

It’s not the plan’s failure, Novak said, that mayhelp SMU’s enrollment, but the factors behind thatfailure.

In May, the Texas House and Senate passed a bill agreeing toallow Texas colleges and universities to raise tuition as much asthey want beginning the spring of 2004.

The bill’s backers argued that the bill was necessarybecause of budget shortfalls and reduced state spending on highereducation. The proposed budget for the next two years would reducestate funding for higher education by $173 million.

House and Senate bills, rendered irrelevant by the tuitionderegulation law, calling for a tuition hike of $23 per credit hourin each of the next two years are expected to be a benchmark fornew tuition rates at Texas public colleges. This is roughly a 50percent increase.

“Texas has always had very strong flagship schools withcheap prices compared to the private [schools],” Novaksaid.

But as the public schools across the state are suddenly beingforced by economic realities to raise tuition, the gap in pricesbetween public and private schools that have always made themattractive to parents begin to erode.

Novak believes families that otherwise wouldn’t think ofsending their child to private colleges may begin to take a secondlook.

“As prices go up and more and more people have issues withpublic schools,” Novak said, “private schools shouldget a closer look. And that can only work to [SMU’s]benefit.”