Maryland lawmakers grilled administrators of the Maryland Prepaid College Trust on Thursday after parents say they have been unable to access all of the money in their savings accounts with no clear timeline for a complete resolution.
“We’re gravely concerned about what we are seeing at Maryland 529,” House Appropriations Committee Chair Ben Barnes (D-Prince George’s) said during a hearing. “This legislature is looking at your governance and thinking maybe we need some big changes.”
Barnes said the account controversy is only the latest in a long line of problems at Maryland 529, the agency charged with managing the state’s college savings plans. A 2019 state audit revealed years of lax oversight and poor record-keeping at the agency, deficiencies that Maryland 529 said it has since addressed.
Leaders at the state agency were apologetic Thursday about their poor communication, missed deadlines and the impact the account issue has caused.
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“I want to apologize to our account holders for how difficult this has been for you,” Maryland 529 board chair Peter Tsirigotis told lawmakers. “We do not take any of your issues or concerns lightly, which is why we’re committed to resolving this issue for our families.”
After rallying in front of the statehouse, parents filled the hearing to share their frustrations and get clarity on a matter that has left many struggling to cover tuition. Hundreds of prepaid account holders have been affected by a calculation error that led Maryland 529 to suspend interest payments in August. People with Maryland’s traditional 529 plans are not affected by the error.
“We’ve had repeated promises and repeated delays,” Brian Savoie, an account holder in Silver Spring, told lawmakers Thursday.
Savoie said he learned of the interest suspension days before Purdue University expected the payment for his son’s first semester. While he should have received $9,000 from the trust, Savoie was only going to get $5,400. He decided to roll over the balance of the prepaid account to a conventional 529. But instead of the $78,000 listed in the statement in 2021, the account only showed $50,000, he said.
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“Resolving this issue has taken much longer than anticipated and we are still working to review every account impacted,” Anthony Savia, executive director of the Maryland Prepaid College Trust and the College Investment Plan, told lawmakers. “Quality control measures have been put in place to ensure accurate reporting moving forward.”
Savia said tuition benefits were never frozen and account holders have access to their principal contributions. During the hearing, he said no account holders have lost funds and tuition payments are being disbursed, with $13 million in tuition payments slated for release next week.
But some parents contend that they haven’t had access to any of the money in their account. Many others say the money is not enough to cover their costs and has forced them to take out loans, pay for tuition installment plans or tap retirement accounts and face tax penalties.
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One of the more intense exchanges during the hearing involved questions about how Maryland 529 planned to reimburse families for these sorts of expenses. After Savia told Del. Kevin M. Harris (D-Prince George’s and Charles) that the board would review each case to make a determination, Del. Kirill Reznick (D-Montgomery) asked why there was no standard procedure in place.
“The board has not made a decision on how to address that yet,” Savia said. “We are aware … that some people have incurred some additional costs and fees. We’ve asked them to indicate that on forms … so we can keep track of that.”
Reznick responded: “I strongly recommend … that those decisions are consistent across the various accounts to the extent possible, and that decision policy is made public. Because what you’re going to see if you don’t do that, are a whole number of individual lawsuits.”
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Barnes continued to press the matter. “What’s the holdup? When will you develop a policy?” Barnes asked. “Can you give these families a timeline?”
Tsirigotis said: “We’re having a board meeting next month and will address it at the board meeting.”
The crowd let out an audible sigh.
Maryland Prepaid College Trust has a total of 27,683 accounts with $1.1 billion in investments as of October, according to the state’s Department of Legislative Services. The prepaid plan lets families lock in future tuition payments, with the state bearing the risk as it absorbs the cost of tuition inflation. Maryland charges families a fee to carry that risk, and officials invest in stocks, bonds and other vehicles, using the returns to pay for tuition. Account holders are paid interest on their earnings.
The agency has said problems with interest calculation first surfaced in November 2021 after the Maryland 529 board voted to raise the rate to 6 percent on balances held before Oct. 31, 2021. But when the agency and its fund manager applied the change, it incorrectly went to some accounts ineligible for the increase, according to Maryland 529.
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The agency suspended interest payments until the error could be corrected, hiring third-party accountants to verify the calculations and the coding of software.
It has prioritized nearly 500 families who needed their distributions immediately and has reconciled the accounts of about 418 so far, Savia told lawmakers.
Parents said they remain dissatisfied with Maryland 529’s efforts to address the problem.
Wendy Hall told lawmakers that she had to refinance her house to pull out enough equity to cover the tuition shortfall created by the error. “We lost our historically low interest rate. And we now have, of course, a higher monthly mortgage payment,” Hall said. “We are unsure what we will do for the spring semester, which is due the first week of February or for the next several years. We can’t keep refinancing our house.”
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