Beleaguered Tuition Fund Could Add to State Debt

By Chris Bentley in News on Dec 14, 2011 8:30PM

Illinois could be on the hook for another financial boondoggle. College Illinois!, the state’s $1.1 billion-dollar prepaid college tuition program, has stopped selling new contracts following reports that the fund has a 30 percent shortfall, totaling roughly $310 million.

College Illinois! locks in state tuition costs at public universities for families who prepay years before their students apply. More than 30,000 families hold contracts with the Illinois Student Assistance Commission, the agency that manages the beleaguered, 13-year-old program.

In addition to suspending new contracts, ISAC has appointed a new chief investment officer tasked with overhauling the College Illinois! fund. Kent Custer, who currently oversees Teachers Retirement System’s $17-billion stock portfolio, will start Dec. 27.

A report released Monday shows College Illinois! was running a $559 million deficit in March 2011, up $28.6 million since June 2010. Andrew Davis, then-executive director of ISAC, told lawmakers in March that the fund was “healthy and in good shape,” despite runaway tuition increases. The program’s own website touts the program, which it says comes “without the risk of stock market fluctuations.”

But an investigation by Crain’s found Davis shifted nearly half the portfolio's assets to riskier holdings, a proportion well above what pension funds typically place in so-called alternative investments. Davis and most of his board members were supplanted last summer by Kym Hubbard’s administration.

“We’re going to have to roll up our sleeves,” Gov. Pat Quinn said in a press conference. “I have great confidence in [Kym Hubbard]. We’ll come up with a rescue plan to make it better.”

Beyond reallocating its assets back to safer stocks and bonds, it’s not yet clear exactly how the new leadership will get the program’s house in order. Families who currently hold contracts, which include some state legislators, will likely say the program provided them an implicit guarantee. That could mean further tuition hikes for students without state contracts, or a tab for taxpayers statewide.