Monday, March 23, 2009

Something Is Fishy Here

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%.


capeman said...

Maybe Dickinson needs money right now so is willing to make this deal. Better than borrowing on the open market?

Shawn said...

Like the Senate budget committee chair said this morning on NPR, there aren't any worries that state institutions won't meet future obligations. The government will just print more money...

The real answer to college affordability is credit by exam, where students can take tests that count for college credit and cost around $80 a piece. Exam sets like CLEP and DSST will make college affordable for all, especially under-served but motivated students.

This is a true revolution in college costs savings!