Gazette reporters have raised many excellent questions concerning Colorado's tuition investment fund. Disclosure, low rates of return, and secrecy of operation have all been discussed. But the fundamental question has never been asked. Just why did the state of Colorado decide several years ago that it was necessary for it to get into the financial business by managing private savings?
Families who wish to save for their children's college expenses have many opportunities to do so. As has been demonstrated in recent weeks, they can get a higher return on their investment and lower overhead charges in privately managed investment funds. The fact that families are saving for tuition at a public university doesn't make the investment any different than if they were saving to buy their first house, or for retirement. (Imagine if we started a state-run savings plan to help people buy cars because they are used on state-run highways....)
It is clear that we need a much more thoughtful debate about the role of government in a market-based economy. There are areas where the market system cannot provide adequately and government should step in. For example, if we depended on the private market to make a profit building roads we would find the system totally unworkable. If we expected profit-making institutions to provide a basic education affordable for all children it wouldn't work. Some families couldn't (or wouldn't) pay what was necessary for a private business to break even. It's hard to imagine what a society with privately provided police and no road signs would be like. In all of these areas, government is needed to replace, or supplement, private market activities.
Similarly, if the state wants to encourage more students to go to college, it could increase the share of state funding to state institutions of higher education. Colorado now has one of the highest percentages of college cost paid by tuition, because it was close to the lowest in the nation aid to higher education per student. If the state wants to target help to struggling families, it could provide more grants and scholarships to needy students, another area where we fall behind. But with a perfectly healthy private financial sector (regulated regarding disclosures) providing a wide range of investment opportunities for savers the rationale for government entering with its own fund is lacking. The college savings fund sounds like a well-meaning, poorly thought out piece of legislation that was bought hook, line, and sinker by almost every elected official at the state level. Whether it practices full disclosure or not it's a program in search of a reason.
Daphne Greenwood, Director
Center for Colorado Policy Studies