SENATE, No. 729
STATE OF NEW JERSEY
INTRODUCED FEBRUARY 15, 1996
By Senator BUBBA
An Act establishing a Tuition Account Program and supplementing Title 18A of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. This act shall be known and may be cited as the "New Jersey Tuition Account Program Act of 1994."
2. The Legislature finds and declares: tuition at institutions of higher education is difficult for many to afford and difficult to predict so that the ability of individuals and families to plan for future education expenses has been adversely affected; it is in the best interest of the citizens of this State to foster higher education and to encourage State residents to enroll in institutions of higher education in order to provide well-educated citizens; providing a mechanism to help assure the higher education of the citizens of this State is necessary and desirable for the public health, safety and welfare; and, this can best be accomplished by the establishment of a program for the advance purchase of college tuition as a means and an incentive for the citizens of this State to provide for future educational expenses.
3. For the purposes of this act:
"Beneficiary" means an individual who meets the eligibility criteria establshed by this act and for whom a purchaser enters into a tuition account payment contract.
"Board" means the Tuition Account Program Advisory Board established pursuant to this act.
"Department" means the State Department of the Treasury;
"Fund" means the Tuition Payment Fund established pursuant to this act.
"Net earnings rate of the fund" means the percentage return of the investment of the fund assets after adjusting for any taxes and operating expenses.
"Participating institution" means all public institutions of higher education in this State.
"Public institution of higher education" means Rutgers, The State University, the State colleges, the New Jersey Institute of Technology, the University of Medicine and Dentistry of New Jersey, the county colleges and any other public university or college now or hereinafter established or authorized by law.
"Purchaser" means any person, including a natural person, corporation, association, partnership or other legal entity which enters into a tuition account payment contract.
"Tuition" means the total of all fees and charges required for attendance at an institution of higher education for a full-time, undergraduate academic year, excluding charges for room and board.
"Tuition account payment contract" means a contract entered into by a purchaser and the department on behalf of the State which guarantees that the beneficiary shall be entitled to a specific number of college credits at the time of matriculation in a participating college.
"Value of the account" means an amount calculated by compounding annually each separate payment from the time of payment to the time the account is utilized or terminated at the actual net earnings rate of the fund.
4. There is established in the Department of the Treasury the New Jersey Tuition Account Program Advisory Board. The board shall consist of the Chancellor of Higher Education or his designee, the State Treasurer or his designee; three presidents of participating institutions of higher education to be appointed by the Governor; and nine public members who shall be citizens of this State with knowledge, skill and experience in the academic, business or financial field, appointed by the Governor with the advice and consent of the Senate for terms of four years, except that in the case of the public members first appointed, two shall be appointed for a term of one year, two for a term of two years, two for a term of three years and three for a term of four years. No more than five of the public members shall be of the same political party. Each public member shall serve until the appointment and qualification in office of his successor. Vacancies in the membership of the board shall be filled in the same manner as the original appointment for the unexpired term only.
Members shall serve without compensation, but shall be entitled to be reimbursed for actual expenses incurred in the performance of their duties.
Annually, the board shall choose a chairman and vice-chairman from among its members, and shall elect a secretary who need not be a member of the board.
The board shall be entitled to the assistance and services of the employees of any State, county or municipal department, board, bureau, commission or agency which it may require and as may be available to it for its purposes and to employ such stenographic and clerical assistants and incur traveling and other miscellaneous expenses as necessary to perform its duties and as may be within the limits of funds appropriated or otherwise made available to it for its purposes.
The board shall consider, study and review the work of the Tuition Account Program Bureau, shall advise the department on request and shall make recommendations on its own initiative for the improvement of the tuition account program. The board shall report annually to the Governor and the Legislature and may make such interim reports as are deemed advisable.
5. The State Treasurer shall establish a bureau within the Department of the Treasury which shall be known as the Tuition Account Program Bureau for the purpose of establishing and administering the tuition account program. The program shall provide for the advance purchase of tuition credits for a beneficiary attending a participating institution.
In addition to all other powers and responsbilities given to the department pursuant to this act, the department shall:
a. Administer the tuition account program and the fund;
b. Enter into tuition account payment contracts with purchasers;
c. Contract and make any arrangements necessary with institutions of higher education;
d. Pay directly to an institution, upon the receipt of appropriate documentation, the funds which the department is obligated to transfer to the institution upon a beneficiary's use of tuition credits;
e. Contract for goods and services and engage and employ personnel, including but not limited to, the services of private consultants, actuaries, managers, legal counsel and auditors for rendering professional, managerial and technical assistance and advice;
f. Solicit and accept gifts, grants, loans and other aid from any person, corporation or other entity or from federal, State or local government and participate in any federal State or local government program if necessary for prudent management;
g. Charge and collect administrative fees and charges in connection with any transaction, including continued participation in the tuition account program;
h. Terminate tuition accounts and make refunds;
i. Contract for insurance, letters of credit and collateral agreements;
j. Restrict the number of participants in the program;
k. Adjust the terms of subsequent tuition account payment contracts;
l. Solicit answers from the appropriate federal agencies regarding the application of security laws to the program;
m. Limit the times and dates during which tuition account payment contracts may be sold; and
n. Consider means whereby a purchaser may have installment payments deducted from salary.
6. a. In order to maintain and administer the program, there is established the Tuition Payment Fund as a separate, nonlapsing revolving fund which shall be used exclusively for the purposes of the program as provided pursuant to this act.
Any moneys in the fund which are not disbursed immediately, and which the department determines to be available for investment, shall be invested and reinvested by the Director of the Division of Investment in the Department of the Treasury as are other funds in the custody of the Treasurer in the manner provided by law.
b. The fund shall consist of:
(1) All moneys invested in the program by purchasers;
(2) All interest received on moneys in the fund; and
(3) Any other moneys, public or private, made available for the fund from any source which the department shall determine to be appropriate for inclusion in the fund.
c. The administrative costs of the program shall be paid out of the earnings of the fund.
d. The department shall obtain appropriate actuarial assistance to establish, maintain and certify that the fund is sufficient to defray the tuition account program's obligations and shall annually evaluate or cause to be evaluated the actuarial soundness of the fund. If the department finds a need for additional assets in order to preserve actuarial soundness or if the
department finds that actuarial soundness can be maintained with fewer assets, it may adjust the purchase prices of the tuition credits calculated pursuant to section 7 of this act to ensure such soundness.
e. The department, in conjunction with the board, shall make an annual report to the Governor and the Legislature showing the fund's condition. This report shall contain the findings and recommendations of the department and the board and the recommendations of any private consultant under contract or volunteering services to the department or board. The report shall detail actions taken or needed to modify the tuition account program to insure the fiscal sufficiency of the fund to meet its obligations under this act. The report shall address the relationship between existing and projected net investment returns and existing and projected tuition levels and address the advisability or necessity of modifying the authorized investment of fund assets, the purchase price of tuition credits, the amount of administrative fee or charges or the amount of refunds offered upon termination of a tuition account. Further, consistent with the goal of providing for the maintenance of the fiscal sufficiency of the fund, this report shall detail those actions taken or needed to modify the tuition
account program so that the fund, purchasers and beneficiaries will receive favorable treatment for puposes of federal taxation.
7. a. On or before July 31 of each year, each participating institution shall certify to the department the tuition to be charged by that institution for the academic year beginning on or after August 1 of that year and ending on or before July 31 of the following year, and at such times as the department shall determine, each participating institution shall certify to the department the tuition charged by the institution for the current or any previous year.
b. The department shall annually establish three standard tuition levels corresponding approximately to the average tuition charged at the county colleges, the average tuition charged at the State colleges and the tuition charged at Rutgers, the State University. Any purchaser may buy tuition credits at any designated standard tuition level.
c. Tuition credits, which are whole or partial units related to an academic year, shall be determined as follows:
(1) The payment of each tuition purchase shall be divided by a standard tuition level as designated by the purchaser.
(2) For tuition purchases during the period from August 1 to July 31, tuition rates for the corresponding academic year shall be used.
(3) If the department, in its discretion, determines that the purchase payment for tuition credits representing a unit of tuition for one academic year at a standard tuition level is to be greater or less than actual tuition for the corresponding year, the method of calculating tuition credits in accordance with subparagraphs (1) and (2) of this subsection shall be adjusted accordingly.
(4) The number of tuition credits calculated at the time of purchase shall also be adjusted or reduced in a manner determined by the department reasonably to reflect potential investment loss resulting from the time of year when the purchase is made.
d. Each payment made by a purchaser pursuant to a tuition account payment contract will purchase tuition credits at one of the three standard tuition levels. All tuition credits purchased will be held in a beneficiary's account and will be converted to the tuition level of the institution to be attended by the beneficiary.
8. a. Upon application, the department shall issue to a purchaser or beneficiary a certified statement of accumulated tuition credits for the payment of all or a portion of a student's tuition for a specific academic year at a designated participating institution. A beneficiary attending a participating institution may apply tuition credits to a specific academic year at the maximum course load or maximum number of credit hours generally permitted to full-time undergraduate students at that institution. The participating institution shall accept the beneficiary's tuition credits when presented. Any participating institution which presents to the department a certified statement of tuition credits for a student accepted for enrollment for a specific academic year shall be paid by the department the actual tuition for the number of tuition credits used as established by the institution for that academic year.
b. Upon presentation of tuition credits, the department shall calculate the value of the tuition payments which shall consist of the purchase price of each total annual purchase of tuition credits compounded each year from the year of purchase to the year during which the credits are to be utilized, by the average annual net earnings rate of the fund. The compounded values of annual purchases shall be summed in order of date of purchase until sufficient credits for one academic year are obtained.
c. In the event that amount as calculated pursuant to subsection b. of this section is inadequate to pay the actual tuition to the institution as required pursuant to subsection a. of this section, and if that shortfall has not been met by other actuarial adjustments to the fund, the total shortfall shall be paid from the fund as a separate payment. The amount of shortfall payments shall be considered in determining the actuarial soundness of the fund as provided for in subsections d. and e. of section 6 of this act.
d. The department shall permit the use of tuition credits for master's degree and other postbaccalaureate programs at participating insitutions, after an appropriate conversion. The department and participating institutions also may agree that tuition credits remaining in a tuition account after tuition is paid may be converted into other educational expense credits to be applied against room, board and other education expenses. Other educational expense credits shall be determined by an appropriate conversion.
9. a. Purchasers buying tuition credits for the use of beneficiaries shall enter into tuition account payment contracts with the department. These contracts shall be in a form to be determined by the department, but shall clearly state the conditions for termination of a contract and that the purchase price of tuition credits can be adjusted pursuant to sections 6 and 7 of this act.
b. In order to be eligible as a beneficiary, a person shall be:
(1) a resident of the State at the time the tuition contract is entered into on the person's behalf; or
(2) a nonresident if the tuition account payment contract entered into on the person's behalf is purchased by a resident of the State, including any legal entity with its principal place of business in the State.
The purchase price for tuition credits shall be determined on the basis of the residency of the beneficiary at the time of purchase. If the residency of the beneficiary changes at the time of matriculation in a participating institution, there shall be an appropriate conversion of tuition credits to reflect the differential, if any, caused by the change in residency.
c. Notwithstanding any of the provisions of this act, a minimum period of four years must elapse between the time the first tuition account contract is entered into on behalf of a beneficiary and the time that tuition credits may be issued and redeemed pursuant to this act.
d. The purchaser shall designate a beneficiary at the time the purchaser enters into a tuition account payment contract. However, the purchaser may substitute for the beneficiary a member of the family of the purchaser or the initial beneficiary upon approval by the department.
10. a. Upon termination of a tuition account, the purchaser or the purchaser's designee shall receive the value of the account if the account is terminated for any of the following reasons:
(1) the death of the beneficiary.
(2) the disability of the beneficiary, which, in the opinion of the department would make attendance by the beneficiary at a participating institution impossible or unreasonably burdensome.
(3) failure of the beneficiary to gain admission to a participating or nonparticipating institution despite a good faith effort to do so.
b. Upon termination of a tuition account as a result of a decision by the beneficiary to attend a nonparticipating institution, the department, upon receipt of proof of the beneficiary's acceptance, shall pay to the institution the tuition for the number of tuition credits purchased, calculated at the standard tuition level as designated in the tuition account payment contract, or an amount equal to the value of the account, whichever is less.
c. Upon termination of a tuition account as a result of the receipt by the beneficiary of a scholarship, the terms of which cover the benefits included in the tuition account payment contract purchased on behalf of the beneficiary, the department shall pay to the purchaser a refund for the number of tuition credits purchased, calculated at the standard tuition level as designated in the tuition account payment contract, or an amount equal to the value of the account, whichever is less.
d. Upon termination of a tuition account as a result of a decision by the beneficiary not to attend an institution of higher education within the time limits determined by the department,the department shall pay to the purchaser 90% of the the tuition for the number of tuition credits purchased, calculated at the standard tuition level as designated in the tuition account payment contract, or an amount equal to 90% of the value of the account, whichever is less.
e. Upon termination of a tuition account as a result of any circumstance not specified herein, the department shall provide refunds in an amount determined by the department up to a maximum of 90% of the value of the account.
f. The department may impose a fee upon termination of the account for administrative costs and deduct that fee from the amount otherwise payable.
g. The substitution of the beneficiary of an account as provided in section 9 of this act shall not be deemed a termination of the account for the purposes of this section.
11. Participation in this program shall in no way be construed to ensure that the beneficiary shall be admitted to a participating institution, complete the undergraduate program at the institution or graduate from that institution, nor shall an institution be required to follow any special admission procedures with regard to that beneficiary.
12. Any tuition credits utilized for the payment of tuition or other educational costs shall not be regarded, actually or constructively, as income, and shall not be subject to taxation by the State of New Jersey under the "New Jersey Gross Income Tax Act" (N.J.S.54A:1-1 et seq.). In the event of the termination of a tuition account, to the extent the amount of refund exceeds the sum of the payments, it shall be subject to taxation as income under the laws of the State.
13. The value of tuition credits shall not be used in calculating personal asset contribution for determining eligibility and need for student aid programs except as otherwise required by federal law.
14. a. The department shall seek a ruling from the Internal Revenue Service as to the federal tax consequences for sponsors who purchase tuition credits. Any contracts executed by the department shall make known the status of that request.
b. If, in the opinion of the department, modifications in the program would lead to a more favorable ruling by the Internal Revenue Service, it shall report its conclusions to the Legislature and the Governor, together with any recommendations for the accomplishment of program alterations.
c. The department shall solicit answers to appropriate ruling requests from the Securities and Exchange Commission regarding the application of federal security laws to the program. Any contracts executed by the department shall make known the status of that request.
15. The Department of the Treasury shall, pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) adopt such rules and regulations as are necessary for the implementation of this act.
16. This act shall take effect immediately for the purpose of establishing the program and for initial planning and administration. Contracts for the purchase of New Jersey tuition certificates shall be offered to the public no later than one year following the effective date of this act.
STATEMENT
This bill establishes a program for the prepayment of college tuition for eligible New Jersey residents at public institutions of higher education in New Jersey.
Under the program, individuals would contract for the purchase of tuition credits at one of three levels, the average tuition at the county colleges, the average tuition at the State colleges, or the tuition at Rutgers, the State University. The would guarantee a specific number of college credits at the time a student matriculated in college. The student's choice of college would be made at the time of attendance. In the event that the number of credits purchased exceeds the amount needed for graduation from the institution selected, the balance could be refunded, or applied to other costs of attendance. In the event that the value of the credits was inadequate to meet the actual cost of tuition at the time the student enrolled, the State would pay the difference to the institution.
The administration of the program would be by a special bureau in the Department of the Treasury, which would develop regulations for the program and enter into contracts for the purchase of tuition credits. All funds would be maintained in a separate non-lapsing fund, the "Tuition Payment Fund," which would be administered by the department. The bill also establishes a Tuition Account Program Advisory Board, to help monitor the program and to advise and assist the board in the administration of the program.
In order to ensure the solvency of the program, the bill provides that the department is to obtain appropriate actuarial assistance to ensure the fund is sufficient to meet its obligations and authorizes the department to adjust the purchase price of tuition credit payments if necessary to ensure solvency. The bill also requires an annual report to the Governor and the Legislature on the fund's solvency.
Establishes the "New Jersey Tuition Account Program."