Should I request a refund of my Washington GET units?
Chop, chop, peppers and onions in the pan. “Now, where is that cumin?” I mutter to myself. I shuffle bottles around the spice drawer and my thoughts aimlessly drift.
“Seed or powder? What is my daughter reading over there? She is going to go to college in only a few years. What? For real?!!”
If you can relate to those thoughts and feelings, you may relate to a couple other questions bouncing around my mind during dinner preparation:
Will my kids eat this? and Should I request a refund of my GET Units?
If so, I hope this blogpost is helpful to you (about the GET, not what kids will eat for dinner). I am a parent to a seventh and fourth grader, I am a high school physics teacher, I am a fee-only financial advisor, and I don’t sleep very well at night. I am very interested in college savings and funding. I love education, but I fret about how we are going to pay for it.
Full disclosure time: Actually, I don’t own GET units personally. But, I have friends and clients who do. They have asked me what I think. So, as a lover of informed opinions, I dove into trying to figure out the GET system, to get some answers.
Unfortunately, the question of “Should I take the refund?” does not have a simple yes or no answer. It really depends on your individual circumstances and goals. I believe the best way for you to make a complex decision is to make an informed decision. In this post, I will discuss the current state of the GET program, some history about how it got here, and what might be next. Finally, I will share a few of my thoughts about what you should do with your GET units, and whether or not you should request a refund.
I obtained most of the information in this post directly from the Washington state GET program, very friendly staff who work there. To get information directly from that source, go to Washington State GET program website.
What is GET?
GET is Washington state’s 529 college savings plan. GET stands for “Guaranteed Education Tuition.” In 1997, the state set the plan up as a prepaid tuition plan. People would buy units, at a price established by an actuary, that would eventually guarantee 1% of tuition+fees at Washington’s highest price public university. One-hundred units equals one year of tuition and fees.
There are two important dollar amounts to understand with the GET program:
The price of a unit. This is set by the GET Committee, and is based upon actuarial projections of future tuition, investment returns, expenses, when people will claim their units, yada yada yada. (To read the details for yourself, I recommend, 2016 Actuarial Valuation Report, produced by the Office of the State Actuary. It is scintillating.)
The payout value of a unit. One unit is worth 1% of tuition and state-mandated fees at Washington State’s most expensive public university in the current year. Simple enough.
In general, the price of a unit has been higher than the payout value, because future tuition will cost more than it does today. In 2015 the price of a single GET unit was about $152, while the payout was about $118/unit. In my opinion, one important consideration you should make before answering the “Refund or not?” question is comparing how much you’ve paid (based on price of units), vs. how much refund you could obtain (based on payout value).
What is the current status?
Currently, the GET program is not open to new purchases. Current GET account holders have the option, until September 1, 2017, or until 60 days after a Washington-based 529 plan opens (whichever is later), to request a refund of their Washington state GET units without fees or penalties. The refund will be in the amount of $117.82/unit, or the total value of your contributions, whichever is greater. Your contributions may be greater than $117.82/unit because from 2011 until 2015, the price per unit was between $144 and $151, considerably higher than today’s payout value.
The current payout value is actually slightly higher than 2016-17 tuition+fees. Current tuition+fees was $10,171. One-percent would be $101.71. In 2015 after the legislature voted to reduce tuition, the GET board froze the payout at 2015 levels, so that current GET unit holders would not be financially penalized.
Personal opinion injection here: Freezing the payout was a very considerate action. In general, I think Washington state runs its financial services operations very efficiently and thoughtfully. They seem to be aligned with the best interests of Washingtonian families.
Brief history of the GET program
In 1998, the GET program officially opened as Washington’s 529 college savings plan. In 2001, the price of a unit in the GET program was $42. In 2008, the purchase price had grown to $76. Three years later, the price of one unit had nearly doubled to $144. Basically, the price of tuition, and the price of GET units were rising faster than my son from the homework table when he hears a ball bouncing outside.
But, the rise in tuition was not quite what it appeared, and to understand today’s GET dilemma, we need to understand why. The cost of undergraduate tuition is paid for by two primary sources: the state, and families. Back in 1990, the state paid nearly 80% of the cost of undergraduate tuition. Currently, the state is paying only 35%. Thus, families have needed to not only shoulder the increasing cost of tuition, but also the reduced state subsidy.
But, in 2015 the rising cost of tuition reversed. The legislature voted to reduce tuition at Washington state universities. Awesome! When does that ever happen? One unfortunate effect was that the payout value of GET units should have declined with declining tuition. To keep current GET account holders from getting financially hurt, legislation included language to freeze the payout value of a unit at pre-tuition drop levels. Props to the legislators.
What’s coming next for the GET program
The GET program is slated to re-open to new purchases in the summer of 2017. The new price per unit will be established once the legislature ends its session and next year’s tuition is set. Then the GET Committee, with the support of the State Actuary will meet to do their wizardry (I mean that in the most respectful Hermione-Granger-sort-of-wizarding way) and set the price. It may not happen until the Fall. In the meantime, you need to figure out what to do with your units.
So what now?
I imagine families bought GET units because guarantees sound great. Perhaps they were following the “a bird in the hand is worth two in the field” thinking. As long as tuition kept soaring upwards, GET unit holders were content. But what happens if University of Washington tuition goes down? What happens if your student wants to attend a different university, where tuition IS still zipping upwards, and you want to get a payout?
I view GET units as sort of like owning a foreign currency (like a dollar, Euro or Peso). As long as you stay in the country of issue, a dollar is still basically a dollar, or a Peso is a Peso. It’s when you try to convert your dollars into Pesos or Euros that things get messy. In a similar way, a GET credit is like currency at a Washington state school. As long as you plan to spend the units there, you know what you’ve got. But, if you think you may take a future payout, then you should carefully consider your options.
What should you do?
The answer is going to depend on you. Although I can’t give you individual advice in a blogpost, I can give some general thoughts:
Here might be a few reasons that you would want to hold on to your GET units:
- You are a dyed-in-the-wool Husky or Cougar. You have been buying Coug or Dawg gear for your kid from onesies up to their first custom license plate border. There is no doubt that your kids is going to wear purple-and-gold, crimson-and-gray, or the blues of Western.
- You are thinking about requesting the refund, then buying back units when the program re-opens. This would be a bad idea, as the price will undoubtedly be higher than the current payout.
- The GET units you own are going to be used within the next 2-3 years. It might make sense to just not mess with things. Even if you lose some value compared to other financial instruments, there IS a floor on the payout value (based on in-state tuition). You won’t find such a floor in the stock market.
- You LOVE the idea of having tuition already paid for, regardless of economic value. This is the “I can sleep better at night” argument. Better sleep should never be discounted.
Here are a few reasons you might want to ask for the refund:
- Your contributions are worth significantly more than the $117.82 payout price, AND you don’t intend to re-purchase units in the system.
- Your students may go to a private or out-of-state school, and there are more than a few years before he/she will do so.
- You are freaked out by government actions batting the value of your kids’ tuition around. Like, it causes you to lose sleep. Better sleep should never be discounted.
If you do decide to take the refund, you will need to decide what to do with the cash. For most people, rolling it into a more typical 529 plan (allows for investments cash, bonds or equity holdings) makes a lot of sense. What to invest it in (once the money is in the 529 plan) is beyond the scope of this blogpost, it should depend on your time-horizon and risk tolerance. For a list of good 529 plans, here are a few links:
If you are still confused, feel free to reach out to me at: firstname.lastname@example.org. Or, consult with another qualified financial advisor. I highly recommend you work with a fee-only advisor, who can tell you why she/he is a fiduciary. Why fee-only? Click here for an article describing why you should look for a fee-only financial advisor.
This blogpost was written by John Chesbrough based on primary research and his own noggin. He receives no compensation for the information contained. It is designed for general information, and should not be used as individualized advice. For all official information regarding Washington state’s GET program, please refer to the Washington State GET program website.
Full-disclosure: I do not own any units with the Washington state GET program. I do, however, have two kids who will be looking to enter college in the next 5-10 years. I do, also, lose sleep at times regarding the rising cost of tuition. I also see the effects of lots of kids money-stressed about how their parents will pay for school (I am a high school teacher as well)! As a fee-only financial advisor, I do not receive any compensation from any products mentioned in this article. I only receive compensation from my clients.