• Registered: 02-13-2010
  • Posts: 1

Topic: Question on Decision Options

I purchased a PACT contract in 1994 for enrollment for 2010.  My daughter has received a scholarship for tuition and fees to AU.  I am considering my options but with all the changes, not sure of the best option.  I have another daughter that will not start college until 2015.  My plan was to transfer to her if my oldest daughter received scholarship.  If I use now with 2010 enrollment will I get credit for the tuition and fees?  Is it best to take this at this point?  Can I still transfer to daughter with enrollment for 2015 still?  Is this too risky with the current situation?

  • Registered: 08-10-2009
  • Posts: 71

Re: Question on Decision Options

To the extent your tuition is already fully funded by scholarship, your contract allows you to ask Auburn to refund the PACT tuition money to you. If I were in your shoes I would probably take the refund instead of transfering to your other daughter for a few reasons.

1) As you note, until our legislators or courts act there is a risk that PACT won't later pay some or all of the 2015+ tuition payments.

2) As opposed to canceling a contract and only getting a refund of contributions plus a little interest, you will get paid full current tuition over the next 4 years. (Your risk is that you will have to reinvest this to keep up w/ any tuition increases over the subsequent 5 years.)

3) Once you transfer the PACT, it is permanant. What if for some reason your daughter loses her scholarship? Is it fully guaranteed for 4 years w/out any contingencies? Going the refund route will keep tuition money flowing in from PACT in case later needed for your first daughter.

One other thing that you might check on is taxes. I have no idea if amounts refunded in excess of your earlier contributions to PACT would be considered taxable gains to you or your daughter. If taxable, you might try to figure out if there is a legal way to roll this into a 529 plan for continued tax-deferred growth.

Of course, this is your decision, and I don't think you actually have to make any decision until just before your daughter enrolls. You should go ahead and check w/ the PACT office as to the latest date you could request a transfer because if you cross this point then the decision is moot.

Congratulations on your scholarship, and good luck!

  • sman6
  • New member
  • Offline
  • Registered: 01-10-2010
  • Posts: 3

Re: Question on Decision Options

I'm in a similar situation. Here's some additional info on how this will work at AU for a scholarship student with PrepaidACTuition. I'm certainly not an expert - so, use this for consideration and further investigation only. Here's what I understood from our recent visit to AU on TALONS (scholarship visit) day.

If you use the PACT for your 2010 freshman, I think things will work this way each semester once you've notified AU that your student is a PACT beneficiary:

  1. Expenses are posted to your student's account: tuition, fees, meal plan, housing, etc.

  2. PACT is invoiced by the university for the tuition and relevant fees

  3. PACT payments are received by the university

  4. Scholarship payments are received from wherever they were EARNED or AWARDED

  5. Outstanding fees are settled by the payments

  6. Any remaining funds in your account are direct deposited to your student's personal cash account

The PACT money isn't paid to you. Your student gets any remaining money after scholarship and PACT money are received by the university and utilized to cover your student's school account debts (i.e., it's hard to say whether its scholarship or PACT money that is really remitted). Also note that PACT pays the school, not you, as invoiced semester-by-semester based on enrollment. One key point they made about this is that the funds are transferred via direct deposit to your student's account - not yours. After all, the student is the beneficiary. Just a clarification, not that it's necessarily significant to you. Also, this is an automated process; so, there should not be undue delay regarding the arrival of funds to your student's account, unless, of course, something slows (think: what if legal action forced an injunction affecting PACT payments here) the arrival of funds from the PACT program.

KB points out some clear pros of sticking with your current beneficiary. One of the cons, of course, is that achieving a return at the rate of current tuition increases (currently averaging 7.7% annually and one of our central PACT issues), seems difficult, at least to me, without serious risk factors that our PACT contracts do NOT include. With simple math assuming the average holds, 4-year tuition (fees not considered) at AU for your 2010 freshman will total about $31,500, while 4-year tuition for your 2015 freshman should be expected to be about $45,500. That's a bit shocking (5 years later tuition is almost 50% more), and it's why there's such a debate about controlling the skyrocketing tuition. It's certainly worth considering very seriously in your situation.

If you believe the PACT program will be rescued and will make good on 100% of its contractual promises (which I personally do believe), the main advantage to the transfer will be the substantially higher payout later. Is there risk that PACT will not pay? Sure. It would mean the state defaulting on its obligations via the arcane constitutional provision of sovereign immunity. It it is not at all clear that the state could even succeed at this, even if it tried. Further, if this were to occur or even be attempted, the 45,000+ voting, informed PACT contract holders and all those they can influence with facts and evidence would not be kind to anyone involved in such nonsense. PACT contract holders come from all walks of life, and they're a resourceful, smart and influential bunch, as evidenced by this very site.

Of course, maybe your 2015 freshman will earn full tuition and housing! Even if that becomes a reality, the 2015 student would receive the (paid-up and due) $45,500 future tuition as a remittance against their paid up student account (my point being that there's still no return risk to you beyond the PACT risk itself).

The only thing you certainly wouldn't want to do is to cancel your PACT.

- - sorry, irresistible editorial soap box here - -
Ironically, and in insane fashion, that's exactly what the PACT board voted to force contract holders to do in their hastily called, infamous Dec. meeting. It's just twisted logic to process. Student excels and is likely to be a high achiever that could drive our economy and/or be some sort of high impact leader; so, let's punish the student that EARNED a scholarship by taking away their PACT CONTRACT. Fortunately, this proposed and illegal contract change is not being pursued, to my knowledge. However, I would encourage you to review the PACT board membership and the people behind this sort of thinking and keep it in mind as you make your voting booth decisions.
- - soap box off - -

Congrats on the scholarship, and War Eagle!