Alabama PACT Settlement Freezes Tuition Payments at 2010 Mark

MONTGOMERY, Ala. – The board that oversees Alabama’s financially troubled prepaid college tuition plan approved a lawsuit settlement on Wednesday that calls for all future tuition payments to be at the levels of fall 2010. 

The 40,282 participants in the Prepaid Affordable College Tuition plan will be responsible for paying any tuition and fees above that level.

State Treasurer Young Boozer said this will settle a lawsuit filed by some participants in PACT and will not require any more state money beyond the $548 million that the Legislature agreed to put in last year.

“This is the best resolution possible to ensure PACT participants are provided the maximum amount of benefits from the available resources,” said Boozer, who handles the day-to-day operations and is chairman of the board.

Patti Lambert of Decatur, president of the parents’ group Save Alabama PACT, “I am thrilled that we don’t have to close the program. It’s not what all of us wanted, but this gives families the opportunity to continue the program and to continue their child’s education.”

The lawsuit settlement already has been approved by the parents who sued and by the state attorney general. It is subject to approval by a Montgomery judge. The settlement does not allow PACT participants to opt out of the agreement, but they can pull out of the program and get a refund rather than get tuition at the fall 2010 rate.

A PACT parent, Chris Shubird of Montgomery, said the prohibition against opting out is not fair.

“I would have liked to have other legal options instead of one attorney determining the whole outcome without clients having any say over the settlement,” she said.

The settlement provides that the attorneys who filed the suit on behalf of PACT participants will be paid nearly $5 million by the state.

The state Legislature created PACT in 1990 to allow parents to pay a fixed amount for a child and get four years of college tuition when their child finished high school. The PACT board invested the money and used the earnings to cover tuition costs. That strategy worked until the stock market turmoil of 2009 and PACT’s investments plunged far below the amount needed to pay future tuition. Also, tuition costs rose much faster than the board had anticipated.

Save Alabama PACT was not involved in the lawsuit, but worked to get the Legislature to shore up the program last year. That $548 million proved not to be enough to keep up with tuition increases in the University of Alabama System and Auburn University, which get the majority of PACT students.

The state treasurer’s office had warned that the program’s funding would have likely reached a point next year where there would only be enough left to end the program and refund all participants’ money.

“When you make it a choice as to whether not to have the program and send your children to school, we have to go for it,” Lambert said.

But Shubird said, “It reminds me of a Ponzi scheme.”