by Andrew Gillen
This story (HT: Student Lending Analytics Blog) indicates that Dickinson is offering a guarantee of 4% above the rate of tuition increases for participants in their I-529 plan.
Historically, "tuition increases have been between 5 and 6 percent a year at Dickinson and its peer institutions", so unless I'm missing something, Dickinson is guaranteeing a return of between 9 and 10 percent a year. Just to be clear, let me say that again: Dickinson is guaranteeing a return of between 9 and 10 percent a year.
Perhaps it is just my "if it sounds too good to be true, it probably is" sense, but I just don't see how anyone, anywhere, ever can legitimately guarantee near double digit returns. Perhaps Dickinson is planning on freezing tuition, and if so, they are really only guaranteeing 4%. But even then, I don't even see how anyone, anywhere, ever can guarantee a 4% return, year after year for up to 18 years.
BTW, the inflation adjusted annual return on the S&P 500 for the last 18 years (without dividends) was just 1.66%. These certainly aren't normal times, nor were the last 18 years a typical 18 year period. But it does highlight the problem with guaranteeing even a 4% return, let alone 10%.