Report Title:

Higher education; prepaid tuition

 

Description:

Establishes a prepaid tuition program under the state post-secondary education commission.

 


HOUSE OF REPRESENTATIVES

H.B. NO.

478

TWENTY-FOURTH LEGISLATURE, 2007

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

RELATING TO HIGHER EDUCATION.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  Chapter 304A, part VII, Hawaii Revised Statutes, is amended by adding a new subpart to be appropriately designated and to read as follows:

"Advanced College Tuition Payment Program

     §304A-    Advanced college tuition payment program; established.  The advanced college tuition payment program is established to help make higher education affordable and accessible to all citizens of the State by offering a savings incentive that will protect purchasers and beneficiaries against rising tuition costs.  The program is designed to encourage savings and enhance the ability of residents to obtain financial access to institutions of higher education.  In addition, the program encourages elementary and secondary school students to do well in school as a means of preparing for and aspiring to higher education attendance.  This program is intended to promote a well-educated and financially secure population to the ultimate benefit of all residents of the State.

§304A-    Definitions.  As used in throughout this subpart, unless the context clearly requires otherwise:

     "Account" means the advanced college tuition payment program account established for the deposit of all money received by the commission from eligible purchasers and interest earnings on investments of funds in the account.

     "Commission" means the state post-secondary education commission.

     "Contractual obligation" means a legally binding contract of the State with the purchaser and the beneficiary establishing that purchases of tuition units will be worth the same number of tuition units at the time of redemption as they were worth at the time of the purchase.

     "Eligible beneficiary" means the person for whom the tuition unit will be redeemed for attendance at an institution of higher education.  The beneficiary is that person named by the purchaser at the time that a tuition unit contract is accepted by the commission.  Qualified organizations, as allowed under section 529 of the federal Internal Revenue Code, purchasing tuition unit contracts as future scholarships need not designate a beneficiary at the time of purchase.

     "Eligible purchaser" means an individual or organization that has entered into a tuition unit contract with the commission for the purchase of tuition units for an eligible beneficiary.

     "Institution of higher education" means an institution that offers education beyond the secondary level and is recognized by the Internal Revenue Service under chapter 529 of the Internal Revenue Code.

     "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended.  "Tuition and fees" means undergraduate tuition and services and activities fees.  Services and activities fees do not include fees charged for the payment of bonds heretofore or hereafter issued for, or other indebtedness incurred to pay, all or part of the cost of acquiring, constructing, or installing any lands, buildings, or facilities.

     "Tuition unit contract" means a contract between an eligible purchaser and the commission for the purchase of tuition units for a specified beneficiary that may be redeemed at a later date for an equal number of tuition units.

     "Unit purchase price" means the minimum cost to purchase one tuition unit for an eligible beneficiary.  The minimum purchase price shall be one per cent of the undergraduate tuition and fees for the academic year in which the tuition unit contract is entered into, rounded to the nearest whole dollar, adjusted for the costs of administration and adjusted to ensure the actuarial soundness of the account.  The adjustments shall include but not be limited to consideration of past and projected patterns of tuition increases, program liability, past and projected investment returns, and the need for a prudent stabilization reserve.

     §304A-    Offices and personnel.  The commission shall maintain appropriate offices and employ and fix the compensation of such personnel as may be necessary to perform the advanced college tuition payment program duties.  The positions shall be exempt from chapter 76.

     §304A-    Administration of program; tuition units; promotion of program; authority of commission.  (a)  The advanced college tuition payment program shall be administered by the commission.

     (b)  The advanced college tuition payment program shall consist of the sale of tuition units, which may be redeemed by the beneficiary at a future date for an equal number of tuition units regardless of any increase in the price of tuition that may have occurred in the interval.

     (c)  Each purchase shall be worth a specific number of or fraction of tuition units at the University of Hawaii.  The number of tuition units necessary to pay for a full year's, full-time undergraduate tuition and fee charges at the University of Hawaii shall be set by the commission at the time a purchaser enters into a tuition unit contract.  The commission may limit the number of tuition units purchased by any one purchaser or on behalf of any one beneficiary, provided that no limit may be imposed that is less than that necessary to achieve four years of full-time, undergraduate tuition charges at the University of Hawaii.  

(d)  The commission also, at its discretion, may limit the number of participants, if needed, and may determine residency requirements for eligible purchasers and eligible beneficiaries, to ensure the actuarial soundness and integrity of the program.

     (e)  No tuition unit may be redeemed until two years after the purchase of the unit.  Units may be redeemed for enrollment at any institution of higher education that is recognized by the Internal Revenue Service under chapter 529 of the Internal Revenue Code.  Units redeemed at a nonstate institution of higher education or for graduate enrollment shall be redeemed at the rate for the University of Hawaii in effect at the time of redemption.

     (f)  The commission shall determine the conditions under which the tuition units may be transferred to a family member.  In permitting such transfers, the commission may not allow the tuition units to be bought, sold, bartered, or otherwise exchanged for goods and services by either the beneficiary or the purchaser.

     (g)  The commission shall administer the advanced college tuition payment program in a manner reasonably designed to be actuarially sound, such that the assets of the advanced college tuition payment program account will be sufficient to defray the obligations of the account including the costs of administration.  The commission, at its discretion, may discount the minimum purchase price for certain groups of purchasers such as those from families with young children, as long as the actuarial soundness of the account is not jeopardized.  The commission shall annually determine current value of a tuition unit.  The commission shall promote, advertise, and publicize the advanced college tuition payment program.

     (h)  In addition to any other powers conferred by this subpart, the commission may:

     (1)  Impose reasonable limits on the number of tuition units or units that may be used in any one year;

     (2)  Determine and set any time limits, if necessary, for the use of benefits under this program;

     (3)  Impose and collect administrative fees and charges in connection with any transaction under this program;

     (4)  Appoint and use advisory committees as needed to provide program direction and guidance;

     (5)  Formulate and adopt all other policies and rules necessary for the efficient administration of the program;

     (6)  Consider the addition of an advanced payment program for room and board contracts;

     (7)  Purchase insurance from insurers licensed to do business in the State, to provide for coverage against any loss in connection with the account's property, assets, or activities or to further insure the value of the tuition units;

     (8)  Make, execute, and deliver contracts, conveyances, and other instruments necessary to the exercise and discharge of its powers and duties under this program;

     (9)  Contract for the provision for all or part of the services necessary for the management and operation of the program with other state or nonstate entities authorized to do business in the State;

    (10)  Contract for other services or for goods needed by the commission in the conduct of its business under this program;

    (11)  Contract with financial consultants, actuaries, auditors, and other consultants as necessary to carry out its responsibilities under this program;

    (12)  Solicit and accept cash donations and grants from any person, governmental agency, private business, or organization;

    (13)  Adopt rules under chapter 91 to implement this part; and

    (14)  Perform all acts necessary and proper to carry out the duties and responsibilities of this program.

     §304A-    Purchase of tuition units by organizations; rules; scholarship fund.  The commission, at its discretion, may allow an organization to purchase tuition units for future use as scholarships.  Organizations electing to purchase tuition units for this purpose shall enter into a contract with the commission which, at a minimum, ensures that the scholarship shall be freely given by the purchaser to a scholarship recipient.  For such purchases, the purchaser need not name a beneficiary until four months before the date when the tuition units are first expected to be used.

     The commission shall formulate and adopt such rules as are necessary to determine which organizations may qualify to purchase tuition units for scholarships under this section.  The commission may adopt additional rules for the use of tuition units if purchased as scholarships.

     The commission may establish a scholarship fund with moneys from the advanced college tuition payment program account.  The fund shall be administered by the commission and shall be provided to students who demonstrate financial need.  Financial need is not a criterion that any other organization need consider when using tuition units as scholarships.  The commission also may establish its own corporate-sponsored scholarship fund under this program.

     §304A-    Contractual obligation legally binding; use of state appropriations.  The advanced college tuition payment program is an essential state governmental function.  Contracts with eligible participants shall be contractual obligations legally binding on the State as set forth in this subpart.  If, and only if, the moneys in the account are projected to be insufficient to cover the State's contracted expenses for a given biennium, then the legislature shall appropriate to the account the amount necessary to cover such expenses.

     The tuition and fees charged by an eligible institution of higher education to an eligible beneficiary for a current enrollment shall be paid by the account to the extent the beneficiary has remaining unused tuition units for the appropriate school.

§304A-    Advanced college tuition payment program account.  (a)  The advanced college tuition payment program account is created as a revolving fund under the custody of the director of finance.  The account shall be a discrete nontreasury account retaining its interest earnings.

     (b)  The commission shall deposit in the account all money received for the program.  The account shall be self-sustaining and consist of payments received from purchasers of tuition units and funds received from other sources, public or private.  With the exception of investment and operating costs associated with the investment of money, the account shall be credited with all investment income earned by the account.  Money expended for program administration shall be subject to the allotment process; provided that an appropriation is not required for those expenditures.

     (c)  The assets of the account may be spent without appropriation for the purpose of making payments to institutions of higher education on behalf of qualified beneficiaries, making refunds, transfers, or direct payments upon the termination of the advanced college tuition payment program.  Disbursements from the account shall be made only on the authorization of the commission.

     (d)  With regard to the assets of the account, the State acts in a fiduciary, not ownership, capacity. The assets of the program shall not be considered state money, common cash, or revenue to the State.

     §304A-    Advanced college tuition payment program account; powers and duties; investments.  (a)  The commission has the full power to invest, reinvest, manage, contract, sell, or exchange investment money in the account.  The earnings from the investment of the money shall be retained by the account.

     (b)  The authority to establish all policies relating to the account resides with the commission.  Disbursements from the account shall be made only on the authorization of the commission, and money in the account may be spent only for the purposes of the program.

     §304A-    Advanced college tuition payment program account; actuarial soundness; adjustment of tuition credit purchases.  The commission shall annually evaluate, and cause to be evaluated by a nationally recognized actuary, the soundness of the account and determine the additional assets needed, if any, to defray the obligations of the account.

     If funds are not sufficient to ensure the actuarial soundness of the account, the commission shall adjust the price of subsequent tuition unit purchases to ensure its soundness.

     If there are insufficient numbers of new purchases to ensure the actuarial soundness of the account, the commission shall request such funds from the legislature as are required to ensure the integrity of the program.  Funds may be appropriated

directly to the account or appropriated under the condition that they be repaid at a later date. The repayment shall be made at such time that the account is again determined to be actuarially sound.

§304A-    Discontinuation of program; use of units; refunds.  (a)  In the event that the commission determines that the program is not financially feasible, or for any other reason, the commission may declare the discontinuance of the program and cease to accept any further tuition unit contracts or purchases.

     (b)  The remaining tuition units for all beneficiaries who have either enrolled at institutions of higher education or who are within four years of graduation from a secondary school shall be honored until such tuition units have been exhausted, or for ten fiscal years from the date that the program has been discontinued, whichever comes first.  All other contract holders shall receive a refund equal to the value of the current tuition units in effect at the time that the program was declared discontinued.

     (c)  At the end of the ten-year period, any tuition units remaining unused by currently active beneficiaries enrolled at institutions of higher education shall be refunded at the value of the current tuition unit in effect at the end of that ten-year period.

     (d)  At the end of the ten-year period, all other funds remaining in the account not needed to make refunds or to pay for administrative costs shall be deposited to the general fund.

     (e)  The commission may make refunds under other exceptional circumstances as it deems fit, however, no tuition units may be honored after the end of the tenth fiscal year following the declaration of discontinuance of the program.

     §304A-    Program planning; consultation with public and private entities; cooperation.  (a)  The commission, in planning and operating the program, may consult with any other state agency for advice and assistance.

     (b)  The commission may seek the assistance of any state agency, private financial institutions, and any other entity with experience in the areas of accounting, actuary, risk management, or investment management to assist with preparing an accounting of the program and ensuring the fiscal soundness of the account.

     (c)  State agencies and the University of Hawaii shall fully cooperate with the commission in matters relating to the program in order to ensure the solvency of the account and ability of the commission to meet outstanding commitments.

     §304A-    Refunds.  (a) The intent of the advanced college tuition payment program is to redeem tuition units for attendance at an institution of higher education.  Refunds may be allowed under specific conditions that may include the following:

     (1)  Certification that the beneficiary, who is eighteen years of age or older, will not attend an institution of higher education.  The refund shall not exceed the current value per tuition unit, as determined by the commission, in effect at the time of that certification minus a penalty at the rate established by the commission. The refund shall be made no sooner than ninety days after such certification, less any administrative processing fees assessed by the commission;

     (2)  Certification of the death or disability of the beneficiary.  The refund shall be equal to one hundred per cent of any remaining unused tuition units at the current value, as determined by the commission, at the time that such certification is submitted to the commission, less any administrative processing fees assessed by the commission;

     (3)  Certification by the student of graduation or program completion.  The refund shall be as great as one hundred per cent of any remaining unused tuition units at the current value, as determined by the commission, at the time that such certification is submitted to the commission, less any administrative processing fees assessed by the commission.  The commission may, at its discretion, impose a penalty if needed to comply with federal tax rules;

     (4)  Certification of other tuition and fee scholarships which will cover the cost of tuition for the eligible beneficiary.  The refund shall be equal to one hundred per cent of the current value of tuition units, as determined by the commission, in effect at the time of the refund request, less any administrative processing fees assessed by the commission.  The refund under this paragraph may not exceed the value of the scholarship;

     (5)  Incorrect or misleading information provided by the purchaser or beneficiaries may result in a refund of the purchaser's investment, less any administrative processing fees assessed by the commission.  The value of the refund shall not exceed the actual dollar value of the purchaser's contributions; and

     (6)  The commission may determine other circumstances qualifying for refunds of remaining unused tuition units and may determine the value of that refund.

     (b)  No refunds may be made before the tuition units have been held for two years.

     §304A-    Tuition units exempt from bankruptcy and enforcement of judgments.  In regard to bankruptcy filings and enforcement of judgments, tuition units purchased more than two years prior to the date of filing or judgment will be considered excluded personal assets."

     SECTION 2.  This Act shall take effect on July 1, 2007.

 

INTRODUCED BY:

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