State Tuition Savings Plans Face Tough Competition From Wall Street


MADISON -- When EdVest Wisconsin began opening college savings accounts a year and a half ago, state Department of Administration officials expected more than the current 1,000 accounts totaling more than $3.5 million.

Now Wisconsin officials are moving to update the program in the face of tough competition from the booming stock market while stressing the value of having safe core holdings to help a family member pay for college.

Such college tuition savings programs are becoming commonplace; by the end of this year 42 states are expected to have some form of "prepaid tuition" in place. Like EdVest, most can be used at schools around the country and are refundable if the family member doesn't go to college. 

But some are much more competitive than EdVest, which earned a B in a February 1999 rating from Kiplinger's Personal Finance Magazine. Iowa and New York got an A-plus for their programs.

EdVest is a conservative investment in a time of high-flying, risky stocks. It invests money in U.S. Treasury, corporate and other bonds through the State Investment Board. EdVest investments gather single-digit returns, not including current and possibly future federal and state tax benefits. That pales in comparison to the double-digit returns from the average stock mutual fund over the past decade.

"Right now, the sky's the limit (in the stock market)," says state Rep.Rob Kreibich, the original sponsor of the program.

The Eau Claire Republican is convinced EdVest must continue. "Over the long haul,people are going to recognize it's a safe investment (with a dedicated purpose)," he says. "It provides a discipline a lot of people would love to have."

Kreibich and others also say public awareness of the program is too low.

Among the steps being taken to update EdVest and make it more appealing:

  • Move the program from the Department of Administration to the office ofelected State Treasurer Jack Voight. Other states have their treasurers running these programs. "I intend to look at some ideas to tweak the program," says Voight, who would serve as the program's spokesman, under a 1999-2001 budget proposal.
  • Thompson's proposed budget now moving through the Legislature wouldallow EdVest "tuition credits" -- bought in amounts as low as $25 per month -- to be used for mandatory student fees as well as tuition.
  • The Legislature's budget committee, the Joint Finance Committee, voted last month to "loan an additional $170,000 in general taxpayer dollars to operate the program. That's on top of the more than $700,000 in start-up costs previously appropriated. EdVest is required to repay that money once more accounts come in. Voight said his goal is to increase current growth from 50 new accounts a month to 100 new accounts per month, in effect allowing the program to break even over the next two years.
  • Kreibich and other lawmakers are considering creating a sister program to EdVest -- one offering the possibility of higher returns and the ability to pay for all college-associated costs. Kreibich envisions investors being able to choose between a couple or several options. He also wants to build in a component for non-traditional adult or returning students.

Kreibich says current EdVest participants might someday be able to move their money around to different investment vehicles, as with many retirement plans. But he and other program supporters stress that no changes would endanger the safe investment now in place.

The EdVest program manager, Marty Olle, argues that even the current EdVest is valuable to the investor who takes a balanced approach to savings. Tuition, he said, represents a "core."

"Such a safe holding allows the investor to gamble on more risky investments. You can do both and you should have a balanced portfolio," Olle says.

To compare various state tuition savings programs, click on


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