Five states have closed their prepaid college tuition programs as assets continue to accumulate rapidly in 529 college savings programs.

In the past year, Ohio, West Virginia, Kentucky, Texas and Colorado have all shut down their state-sponsored prepaid tuition plans. These programs let people pay in advance for a child’s college education at today’s prices. The state could take the money, invest it, and cover the eventual cost of the child's tuition, but the recent market malaise has reduced investment returns and undermined the assumption that costs would be covered.

Most recently, on Oct. 8, Ohio closed to new enrollees the guaranteed option of its CollegeAdvantage 529 plan. The prepaid plan took the step after a financial examination forecast tuition increases of 10% annually compared with only 7% investment returns.

Current participants can contribute the annual maximum through December. The program board will review the situation in December 2004 and decide whether to reopen then.

Analysts said economic conditions make it impossible for states to keep pace as tuition costs continue to rise rapidly.

"It is certainly possible we may see more prepaid plans close," said Joe Hurley, the president of Savingforcollege.com. "I wouldn't be surprised to see more states do the same thing."

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.