I. Introduction

On December 23, 1986, the Michigan Education Trust (MET) was signed into law, making Michigan the first state to implement such a financing program for higher education. Ten other states subsequently passed guaranteed tuition bills, although only two – Florida and Wyoming – have operational programs. As a prototype for prepaid tuition plans, Michigan represents the test case for programs that promise to "guarantee tomorrow's college tuition costs at today's prices."

MET "guarantees in-state ... undergraduate tuition and mandatory fees" at Michigan colleges and universities "for the number of credit hours purchased." The logic behind the program is basically simple. "Parents, grandparents, businesses and others" may "prepurchase and guarantee college tuition for a Michigan child at any of Michigan's public colleges or universities." MET "will then use the funds and investment earnings to pay the respective college tuition and mandatory fees for each student, after he or she is accepted by and enters the college of his or her choice." [1]

State Treasurer Robert Bowman, widely credited as MET's architect, describes the trust as an insurance program for higher education, similar to the Federal Deposit Insurance Corporation (FDIC). "This is insurance – you buy insurance to protect against the best of times and the worst of times," Mr. Bowman has stated. [2] "It's flexibility and peace of mind that your child can attend the university he or she wants." [3] Promotional literature states, "MET provides peace of mind to parents, and hope and incentive to children." [4]

MET's stated purpose is to address the problem of rising tuition costs for Michigan's middle class. "Although great progress has been made during the past several years to stem the rising tide of tuition increases in Michigan," MET literature states, "it is unrealistic to believe that inflation, declining federal support, an uncertain international economy and other factors won't continue to push tuition upward." Mr. Bowman contends MET appeals to the mass of individuals who "don't have financial planners and don't read The Wall Street Journal." [5]

Much has been written about MET's actuarial soundness and the fund's much-discussed guarantee, but the program has not been studied from a political economy perspective. What of the economic assumptions underlying the program, or the probable consequences on institutions of higher learning and taxpayers? This study proposes filling that gap by analyzing MET from the perspective of the economic theory of politics and by reviewing the program's claims and consequences.