Tuition Hikes Disastrous to College Assurance Firms

Filipino parents’ dreams of ensuring their children’s college education through pre-need plans continue to be shattered with the closure of the country’s first ever college assurance company.

By Carl Marc Ramota
Bulatlat

The deregulation of college tuition through the enactment of the Education Act in 1982 opened the doors for a sharp rise in tuition, making higher education more elusive if not impossible to many students for the last two decades.

Pacific Plans check

In turn, this has prompted many parents to avail of educational plans to secure their children's college education. In the beginning, the budding pre-need education industry seemed to provide the remedy. To date, the P150-billion industry is growing at a phenomenal double-digit rate with some four million plan beneficiaries.

To many parents however the recent unexpected downfall of the first pre-need firm in the
country - Pacific Plans Incorporated (PPI) - following the same fate of
industry leader College Assurance Plan (CAP) paint a grim picture.

Worse, more pre-need firms are expected to follow PPI’s fate. As early as 2002, the Securities and Exchange Commission (SEC) admitted that more than 90,000 pre-need plan holders were left high and dry when 13 pre-need firms were either suspended or gone bankrupt.

In the end, the plan holders are the biggest losers. With the successive collapse of pre-need firms, the dreams of thousands of parents and their children for a college education are left in a shambles.

Rehabilitation?

Last April 23, some 2,000 PPI plan holders converged at Saint Paul's College’s Pasig gym to protest a recent court ruling allowing PPI's petition for rehabilitation.

Earlier on April 14, Makati Regional Trial Court Judge Romeo Barza issued a stay in order allowing PPI "to stop paying its obligations until the company is rehabilitated." In its petition for rehabilitation, the 38-year old company is given five years or until 2010
to put its fiscal house in order.

In a statement, the Yuchengco-owned company blamed the incessant tuition hikes for its financial woes. "The deregulation of tuition,” a company statement said, “has caused a tremendous rise in the cost of education, which in turn put an enormous pressure on traditional (open-ended) plans and their respective trust funds considering that pre-need companies dealing in such securities could not pass on the additional cost to their planholders."

PPI also blamed the devaluation of the peso which has "resulted in a poor business climate, compromising a pre-need company's ability to meet its obligations."

Pacific Plans' trust fund is estimated at $50 million, consisting mostly of the liquid assets in the U.S. dollar-denominated National Power Corp. (Napocor) bonds maturing in 2010.

”Surprised” SEC

Apparently, even the SEC was caught off guard with PPI's move. SEC Chairman Fe Barin admitted that the Commission was "caught by surprise," as there was no sign of a liquidity problem with Pacific Plans based on the financial statement submitted to the
commission.

Before the PPI folded up, SEC even approved in August 2004 the company’s application for a "corporate restructuring" which effectively transformed it into a “special purpose vehicle” left holding all the problematic pre-need investments.

Curiously, the safe pre-need products, those offering fixed benefits, were transferred to a new company, Lifetime Plans. After securing the divestment, PPI's board of directors led by its chairperson and president, Helen Y. Dee, resigned en masse.

The Yuchengcos brought along with them about 400,000 pre-need plans into Lifetime Plans, leaving Pacific Plans with 34,000 open-ended, traditional education plans. In the open-ended education plans the company is obliged to pay tuition at any rate, unlike fixed-value plans.

Angry plan holders

To appease angry plan holders, PPI offered an interest of seven percent on educational plans for those who can wait until 2010. The interest offer is lower compared to prime time deposit accounts offered in some banks which give 8.5 percent earnings.

PPI said it can still pay the tuition of plan holders but only as "tuition support," the amount of which will still be determined by the school type.

In a statement, PPI spokesperson Jeanette Tecson said "the company will pay most of the educational claims for non-exclusive or less expensive schools but will only shoulder less than half the claims of those enrolled in schools with high tuition." In this payment scheme, Pacific Plans will provide only P28,000 for semestral plan holders, P29,000 for annual plan holders and P22,000 for trimester plan holders.

But the tuition support is not enough, angry plan holders reacted, adding they "felt deprived and cheated of their money." In the recent April 23 PPI plan holders meeting, a plan holder commented that the company pledges were all part of “a greater scheme to legitimize their position to file a petition for rehabilitation."

Another plan holder said the PPI brouhaha can be considered as a "grand-scale estafa." They also blamed the SEC for being "toothless" in protecting the welfare of pre-need consumers.

Among those who flocked to St. Paul was Elizabeth Centeno on behalf of her sister Anabelle Macalinao, who is working in Dubai. Macalinao, a widow, availed of an educational plan for her 13-year old son John Paul before she left for Dubai four years ago.

Centeno said she was surprised when she first heard the news and quickly called her sister abroad.

"Nagulat din yung sister ko. Shocked siya. Iniisip niya safe na yung edukasyon ng anak niya nung kumuha siya ng plan” (She was also surprised. She was shocked. She assumed her son's education was already assured when she availed of a plan.), Centeno said quoting her sister.

Centeno admitted she and her sister fear for John Paul's college education now that it is uncertain whether they can still refund their payment from Pacific Plans. "Hindi rin natin masasabi na laging may pera para sa pag-aaral ng bata" (We really can't tell if we will
always have the money for the child's education), she told Bulatlat.

Distressing signal

In a statement, Anak ng Bayan Youth Party Vice President Raymond Palatino blamed the Education Act of 1982 for the current pre-need industry crisis. "Pacific Plans and CAP's downfall merely highlight how the cost of education, particularly in the tertiary level, has
dramatically increased after the deregulation of tuition," he said.

He predicted that more pre-need firms are doomed to close this coming school year unless the government starts to arrest the incessant tuition hikes in tertiary schools.

In a recent study, Anak ng Bayan (nation’s youth) projects that if the average tuition
rate increase of 12 percent continues over the next five years, the national average per unit would reach P590.20 by 2010. By then tuition would have increased by as high as 1,257.41 percent since 1990.

Palatino said the closure of pre-need firms sends a distressing signal to college hopefuls. "Parents and students apply for pre-need plans to ensure that they may be able to shoulder the high cost of tertiary education,” he said. “With pre-need firms now closing, access to higher education has become more elusive to many."

He also predicted an upsurge in the rate of college dropouts and number of out-of-school youth in the coming school year. Bulatlat

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