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A Nationwide 529 Plan, Established by the Independent Colleges and Universities of Consortium 1 A Nationwide 529 Plan, Established by the Independent Colleges and Universities of Consortium 1

Facing the Future Today, most independent colleges are facing: n Tuition rising rapidly n Facing the Future Today, most independent colleges are facing: n Tuition rising rapidly n Increasing pressure on financial aid resources n Student debt load rising n Savings rate of American families falling* *increasing this last one might help with the others 2

State 529 Plans n n Are established in all 50 states Benefits are federal State 529 Plans n n Are established in all 50 states Benefits are federal income-tax free (many also have state tax benefits) n n Had $26+ Billion in combined assets as of July 2002 Come in two varieties: q q Savings (like an investment fund) Prepaid (guarantees against tuition inflation) * Independent 529 Plan is the prepaid type 3

Why an Independent College Prepaid 529? v. Many families want the protection against tuition Why an Independent College Prepaid 529? v. Many families want the protection against tuition inflation that savings plans do not have v. Not all states have prepaid plans (currently, fewer than 20) v. State prepaid plans cannot guarantee tuition at out-of-state colleges and universities v. Most independent colleges seek students from out-of-state 4

Forming a Consortium n In January, 1998, 18 southern colleges formed Tuition Plan Consortium Forming a Consortium n In January, 1998, 18 southern colleges formed Tuition Plan Consortium (TPC) and began recruiting their peers. n By the end of the year, the TPC had grown to 104 founding institutions. n Currently, TPC has the go-ahead from the IRS to launch the first college-sponsored 529 plan. It has the support from almost 300 founding institutions in 42 states. 5

Governance of Consortium Currently, more than 40 institutions are represented on various permanent and Governance of Consortium Currently, more than 40 institutions are represented on various permanent and ad hoc committees. 6

Tuition Plan Basics n An Independent 529 Plan certificate is purchased for a specific Tuition Plan Basics n An Independent 529 Plan certificate is purchased for a specific child but not for a specific college. n Buyer gets guarantee of % of tuition at all participating institutions, including a certificate discount. Funds are invested through TIAA-CREF Trust Co. Years later, child enrolls in any TPC college and is credited with % of tuition purchased. College gets net return on investment. Benefits are federally tax-free for families and colleges. n n 7

Why a Certificate Discount? n n Suppose tuition is inflating at 5% a year. Why a Certificate Discount? n n Suppose tuition is inflating at 5% a year. Suppose net investment returns average 8%. The college would realize a 3% excess return. Why share the return with families? v v It’s the right thing to do. Makes Independent 529 Plan more attractive and marketable. Better ratings in the financial press. Reduces exposure to accusations of gouging. 8

An illustration: How it works Let’s Assume: n n College A’s current tuition and An illustration: How it works Let’s Assume: n n College A’s current tuition and mandatory fees = $20, 000 per year. Net annual investment return is 8%. Future tuition inflation is 5% per year. College A chooses 1. 5% as certificate discount. Beneficiary Ben is 8 years old when tuition is purchased. He enrolls in College A 10 years later, at age 18. [Note: Actual investment returns may be more or less than a college’s rate of tuition inflation. ] 9

Calculations for Ben Today’s cost to Ben’s family for 1 year: $17, 195 ($20, Calculations for Ben Today’s cost to Ben’s family for 1 year: $17, 195 ($20, 000 X. 98510) College A’s current tuition X the discount (100 -1. 5 =. 985) raised to the tenth year. Ben’s eventual scheduled tuition: $32, 577 ($20, 000 X 1. 0510) College A’s current tuition X tuition inflation (100% + 5% = 1. 05) raised to the tenth year. Proceeds realized by the college: $37, 121 ($17, 195 X 1. 0810) Family’s purchase price X investment returns raised to the tenth year. 10

Question: n What if Ben’s family purchased less than one year? Answer: n No Question: n What if Ben’s family purchased less than one year? Answer: n No problem. Whatever amount they purchased would produce a proportionate result. Funds in excess of one year’s tuition can be carried over to subsequent years. Note: Account values can always be accessed on-line. 11

Investment Management n n n The TPC Investment Committee oversees investments, based on Board-set Investment Management n n n The TPC Investment Committee oversees investments, based on Board-set policies. Cambridge Associates helped develop policies. Assets of Independent 529 Plan are managed by TIAA-CREF Trust Company, FSB. A perpetual fund model, similar to that used for pensions, is employed. A stabilization fund is employed to mitigate extremes. 12

TIAA-CREF Tuition Financing Inc. ’s Role In addition to investment management, TFI, a subsidiary TIAA-CREF Tuition Financing Inc. ’s Role In addition to investment management, TFI, a subsidiary of TIAA, provides support services for Independent 529 Plan, including: q program administration q customer service q marketing 13

Other Aspects of Independent 529 Plan n n Institutions bear risk (and rewards) of Other Aspects of Independent 529 Plan n n Institutions bear risk (and rewards) of investment. Contributions by families can be as little as $25/month. Refund policy: v Purchase price, adjusted by actual returns, but capped at 2% per year with a floor of negative 2% per year. Three year minimum holding period before a certificate can be used. Rollovers are permitted between 529 plans. 14

Benefits of Independent 529 Plan to Members of TPC ü ü ü Access to Benefits of Independent 529 Plan to Members of TPC ü ü ü Access to a pool of financially-able students Reduces future tuition costs (for certificate holders) without using institutional resources Provides a service to alumni Encourages a national culture of saving for college Sends message to constituents that you are doing all you can to make tuition affordable 15

Next Steps Sign participation agreements. « Set a certificate discount rate for all certificates Next Steps Sign participation agreements. « Set a certificate discount rate for all certificates sold in the first program year. « Assist Tuition Plan in telling alumni and other friends about Independent 529 Plan. « Honor certificates when presented. « (First certificates will not be presented until 2006. ) 16