The Washington Guaranteed Education Trust (GET) is a prepaid college tuition plan that is guaranteed to keep pace with the cost of college tuition. The GET account is measured and purchased in units, where 100 units equals the cost of one year of resident, undergraduate tuition and state-mandated fees at Washington’s most expensive public university. It can be used nationwide, and those who sign up for GET can purchase current units at a premium, to lock in the guarantee. GET units today cost $113, and their current value is $104.In 2013 Washington State lawmakers froze tuition, and reduced tuition at four-year colleges in 2015. While tuition is set to increase again due to budgets passed in 2017, the freeze and lowering from a few years ago, along with stock market gains, left the GET program with a surplus of cash.
Starting June 15, people who purchased GET units before July 2015 have an opportunity to roll over their GET units into the state’s new 529 plan, DreamAhead. There’s a three-month window for those who want to roll over their GET funds into DreamAhead, and the window closes on September 12. Those who choose to roll over their GET funds will have their credits automatically increased from the current value of $104/each to $143/each.
The difference between GET and DreamAhead is the guaranteed value present in GET. Washington State is taking on the risk, so it’s like an insurance policy. DreamAhead is an investment account, and the value is dependent on the performance of the underlying investments chosen by the account owner, which is you. There are pros and cons to both approaches.
If you’re not sure you want to take advantage of the rollover, the GET Committee plans to make additional adjustments for those who stay invested in GET after the 90-day rollover window closes. The first adjustment adds units to all GET accounts with an average purchase price higher than $117.82 (based on all units purchased prior to July 1, 2015 that haven’t been redeemed). If the average purchase price is greater than $117.82, they’ll take the difference and multiply it by the total number of qualifying units in the account. They’ll divide the result of that number by the current GET purchase price of $113 to reach the new number of units that will be added to your GET account.
After the rollover window closes and the first adjustment is complete, the GET Committee will review the funded status of the program. If the funded status is greater than 125%, everyone who has unredeemed units purchased prior to July 1, 2015 will receive additional units. There’s no set calculation for the second adjustment, except that customers will not receive more than 15% of their units purchased prior to July 1, 2015.
Let’s assume throughout the two scenarios that the value of a GET unit remains static at $104/each, and all units were purchased before July 1, 2015.
Sam has a GET that currently holds 100 units and is currently valued at $10,400. If Sam completes the rollover to DreamAhead, his units will be valued at $143/each, meaning the value of his DreamAhead account will be $14,300. He would then need to determine how to invest the cash in the account.
Sam decides not to rollover the GET account into DreamAhead. His average purchase price per unit is $125. The difference between his average purchase price of $125 and $117.82 is $7.18, which is then multiplied by his total units, 100. The 718 is then divided by 113, meaning Sam now has 6.35 units added to his account for a new account value of $11,060.40, based on 106.35 units. He may also be eligible for a second adjustment for additional units, but there’s no guarantee this will be the case, and there isn’t a set formula for how any additional adjustment would be calculated.
GET will also offer the option for a non-penalty refund up until the 90-day rollover window closes. You would receive either $117.82 per unit or your initial contributions, whichever is greater.
The below table highlights the differences between GET and DreamAhead. It’s important to note that GET is ideal for those who prefer a guaranteed return based on the rate of tuition inflation, while the DreamAhead is geared toward those who want to have some control over their college savings investments. If you’d like help determining which option is right for you, we recommend speaking with your financial professional. If you don’t currently work with a financial professional and would like to learn how Merriman can help you, please contact us.
Written by: Hannah Ahmed, CFP®, CDFA®