COLUMN ONE : Paying for College by Degrees : Many states will offer programs to guarantee children’s tuition. Parents are lining up to join, but it may not be the best way to save for education.

Barbara Palmer saw a way to solve one of a mother’s worst nightmares. So she bought in on the deal.

She and her husband are paying the State of Florida $105 a month for the next five years. In return, their 6-year-old son, Ryland, will be guaranteed four years of tuition at any Florida college or university at which he is accepted, plus one year’s dormitory fees.

“There’s no telling what’s going to happen to tuition,” said Palmer, who lives in Tallahassee. “I’ve guaranteed my child will go to a Florida school, no matter what the cost.”

Palmer is far from alone. Parents, horrified by predictions that today’s infant who enters a private college in the year 2007 may need $150,000 to finish, are flocking to state programs that lock in the cost of college in exchange for an up-front payment.

Yet, as mothers and fathers seek security for their children and themselves, skeptics also are cautioning that such programs may be selling out the future, and that they do little to help the people who need it the most.

Arthur M. Hauptman, a Washington-based independent education consultant, calls prepaid tuition plans “a way of giving upper- and middle-class families peace of mind by giving them an insurance premium.” Hauptman and others worry that the money invested now will not keep pace with rising college costs or that, worse yet, the states offering the programs will invest the money poorly.

“The thing that bothers me is that if tuition goes up faster than the investment, who pays for the difference?” he asked. The answer, he said, would be that states would be forced to dig into other funds to pay the difference.

Within the past few years, more than half the states have taken steps to help parents deal with the cost of higher education.

New laws in 10 states guarantee that tuition will be covered down the road on a pay-now basis. So far, only three of those states--Michigan, Florida and Wyoming--have actually implemented the program. Alabama is expected to become the fourth this spring.

For example, if the parents of a year-old child in Michigan put $7,904 into the state’s prepaid tuition program, the child will be guaranteed full tuition and fees at any of the state’s four-year schools when he or she is ready for college in 17 years. (Current four-year tuition at the University of Michigan for a state resident is $14,652.)

If the student wins a scholarship, or does not attend college in Michigan, a refund or transfer of benefits can be made.

Another kind of program, in which bonds are issued, is much more common. According to a recent survey conducted by the Denver-based Education Commission for the States, 22 states have approved issuing tax-free bonds and hundreds of millions of dollars’ worth of bonds already have been sold.

The bonds do not have to be used for education, but that is how they are being marketed by the states. They have one clear advantage: many of the state bonds are not subject to federal taxes, while the profits from the prepaid investment could be liable to taxation.

The bond programs are less controversial than the prepaid programs, because they do not lock the states into covering excess tuition costs.

Hauptman and others fear that the prepaid programs might cause colleges and universities to drastically cut expenses, including teacher salaries, if it became clear that not enough money was going to be available from the prepaid pot.

That kind of talk makes Palmer, the Florida mother, bridle a bit.

“All I can say is that I’m trying to do some long-range planning for my family, and that if someone else doesn’t, I shouldn’t be punished for it,” she said.

Limits College Choice

The prepaid programs also limit where a student may attend college, though there is some talk of reciprocal agreements among the states that have them.

“We all have hard choices to make in life,” said Al Kaempfer, whose two small children are enrolled in the Florida program. “This may be one of theirs.”

There is evidence that a prepaid tuition plan can work. Canada has had a government-sanctioned program since 1965. The largest program seller, Toronto-based University Scholarships of Canada, has more than $160 million in assets. The scholarship funds are open to anyone, including U.S. citizens.

As for the bonds, analysts point out that over the long term, other kinds of financial instruments would earn more money. As one put it: “If you are the kind of person who reads the Wall Street Journal every day, you probably don’t want to buy these bonds.”

Frank Resnick, a Connecticut bond buyer and director of fiscal affairs at Central Connecticut State University, concurred but said that the value of the bond programs is that they call attention to the need for saving.

“Plans like this raise people’s awareness about the importance of saving for a college education,” he said. “Most don’t think about it until it is too late. They start thinking about the cost of college when the student is a high school junior or senior. The time to think about saving is when the child is a child. When you talk to parents about the cost of attending college now, their jaws drop, and the number becomes inconceivable when you project 10 to 15 years out.”

That, in turn, can have a demoralizing effect that just causes people to give up. The term used in educational circles for such feelings is “enormity paralysis.”

“People are beginning to say, ‘I can’t send my kid to college.’ And as a result, children don’t even get the academic background in high school that they need,” said Christine Paulson of the Denver-based Education Commission of the States. “That’s the biggest problem. It turns off people’s aspirations.”

Action in California

California has neither type of prepaid tuition program, but not for lack of trying.

Assemblyman Tom Hayden of West Los Angeles has introduced two bills since 1987 that would have enabled the state to get into the business of helping Californians save for college. A third measure that passed the Assembly is to be taken up by the Senate Appropriations Committee this year.

Hayden’s first bill called for both a prepaid plan and the selling of municipal or state bonds. So did the second, but a compromise version later introduced by Assemblyman Sam Farr of Monterey limited the program to bonds. Gov. George Deukmejian vetoed both of the earlier measures.

The latest bill calls only for the sale of municipal bonds. The Department of Finance has gone on record as opposing the measure because it does not define what the administrative costs will be and because the bond proceeds may be subject to federal taxes.

Hayden disagrees. He called prepayment the “Social Security of the ‘90s” and suggested that such programs should be extended to first-time home buyers and medical plans as well.

“I thought this would be a very popular idea that would catch on because it should appeal to politicians’ favorite group--the middle class,” Hayden said.

For all the dismal talk about the rising costs of college, the future may not be quite so grim as it is often painted. Education experts are very quick to point out that relatively few universities charge the $20,000 a year for tuition, room and board that is being bannered in headlines. Many charge half that amount, and a state school may charge a fourth of it.

“It’s just something generated by the media,” said Paulson. “People overreact to these stories.”

Theodore Bracken, an official of the Consortium on Financing Higher Education, said much the same thing: “Stanford grabs the headlines, but you can go to school for $5,000 a year if you are willing to commute to a local college.”

The College Cost Book, prepared by the College Board of New York, bears him out. Tuition and fees--not including room or board--for the well regarded University of Texas at Austin, for instance, come to $964 a year for a Texas resident. Tuition and fees for a California resident at UCLA are $1,634.

‘Chivas Regal Effect’

The projected future costs can be somewhat misleading as well, because rising college costs are not placed side by side with how much more money people will be making in 10 or 15 years, at the standard rate of inflation. Another glitch is that some of the most prestigious schools in the last decade have been drastically raising tuition, but not necessarily to just stay even with inflation. Administrators have discovered that expensive schools attract more applicants because they are considered more exclusive--a phenomenon commonly called the Chivas Regal effect.

Another factor in the alarm over spiraling college education costs has been the entry of private investment companies into the field of financing the future and the hype that goes with it.

Bracken, of the Consortium on Financing Higher Education, said that some of these investment programs are legitimate, but others are not quite as good as they may first appear to be.

“There are better deals (from investment firms) and not-so-great deals, depending on the motivation behind the program,” he said.

Hauptman also said he would be “a little skeptical of the private tuition plans. I think some people see there is a real profit to be made.

“I think some fear has been engendered by people who say you had better put (money) in financial instruments or you’re never going to make it,” he said.

Bracken also said that one of the best deals just became available on Jan. 1, when proceeds from Series EE U.S. Savings Bonds, which now earn 7.81% interest, became tax exempt so long as they are used for education. The down side is that, as the legislation is now worded, the tax benefits are phased out as a family’s annual income reaches $60,000, and the rules governing who may buy the bonds are, as Hauptman put it, “a little messy.”

Yet to Bracken’s way of thinking, “For the average Joe, it’s a safe, great option.”

Bracken said he believed the income ceiling on the savings bond plan should be raised to $150,000, to expand the pool of people who can use the bonds to save for college. And he said that, as an alternative, a national plan could be put in place by making individual retirement accounts tax free if the funds are used to pay for schooling.

Certainly there are other ways of financing a college education, but the common theme from almost all those interviewed was that early planning is essential to avoiding financial calamity.

Bracken said that state-sponsored plans may not be perfect, but at least they are a start.

“Any kind of saving up front is better than nothing at all,” he said. “Even if the return isn’t great, it’s an important step to be taking.”

And the response from the public can hardly be overlooked by lawmakers in states that have no tuition program.

Florida ‘Avalanche’

Bob Montjoy of the Florida program said that response to prepaid tuition there has been staggering.

“We’ve been avalanched down here,” he said. “Before we had an enrollment, people would call up and ask if they could send a check today.”

And Brenda Emfinger of the Alabama state treasurer’s office said that she is often asked about the tuition guarantee program that will begin in the spring: “What I tell people is that if they smoke cigarettes or drink a couple of Cokes a day, all they have to do is do without them and that takes care of it right there. For most people, this is no more than a Christmas club.”

Times researcher Lianne Hart contributed to this story.