PAYING FOR COLLEGE. Prepaying helps some

JENNIFER'S 4. She's not too concerned with college. But her parents are, and so they just bought her a college education. The investment was made through tuition prepayment, which offers parents a way to pay for future tuition expenses - as much as 22 years ahead of time - and allows colleges to anticipate future enrollment levels.

Prepayment is attractive because Americans are increasingly concerned ``that college will no longer be accessible to their children,'' says Aims McGuinness, assistant executive director for higher education at the Education Commission of the States.

But while a variety of state plans have been proposed, and several have been passed into law, only single-institution plans are currently operating. And these, as well as the newer state- and even nationally-based proposals are facing considerable criticism.

The original plan, around which all other state proposals were modeled, is called the Michigan Education Trust, and is run very much like a mutual fund. Parents deposit $3,000 to $4,500 - depending on the child's age and the specific plan - with the state, either in a lump sum or through a payment plan. The state then invests the money in the hopes that it will grow enough to cover undergraduate expenses at any of Michigan's 13 universities and 29 community colleges.

In other words, if you ``invest'' $10,000 in a college whose current cost is $10,000, ``you'll be guaranteed one full year - when your child is ready to go to college - regardless of how much it costs when they actually go,'' says Robert Schwartz, assistant to the governor for educational affairs in Massachusetts, who worked with Michigan officials on that state's plan.

As of June 15, Michigan, Tennessee, Florida, Indiana and Wyoming enacted similar proposals, and 29 other states are considering it, according to the Education Commission of the States. But none can become law until ``July 1, 1988 or until they get a favorable tax ruling from the IRS,'' Mr. McGuinness says.

An unfavorable IRS ruling ``would change the value of such a program dramatically,'' says Frank Balz, executive director of the National Institute of Independent Colleges and Universities.

Nor is there a consensus among college officials, financial planners and parents on the efficacy of prepayment plans. There are other ways for a family to build up money for college: growth mutual funds, certificates of deposit, Uniform Gift to Minors Act accounts (UGMAs), single-premium life insurance, and single-premium annuities.

Before prepayment can be widely applied, many wrinkles must be ironed out, educators say.

Inflexibility is a key criticism, aimed especially at private plans. Most are intended to keep students in-state ``locking a child into that particular college at a very early age,'' Mr. Balz says.

State plans may not be as rigid, but they do limit students to the universities in one state. And a parent's or child's favorite college may not offer the plan, may reserve it for children of college alumni, or may make it available only to a limited number of students.

Many say the basic stumbling block is the issue of tuition guarantee. Neither college administrators nor states are eager to accept the burden of investments that fall short of expectations.

To cover themselves, if a student doesn't attend college or dies, many of the proposed plans, and most already running, would return only the principal, regardless of how much interest was earned.

Then why are prepayment plans called ``good sound economic practices'' by so many?

``They transfer the risk of fund growth from the family to other groups,'' says Richard Anderson, financing specialist at Columbia University's Teachers College.

Prepayment gives parents ``some control, and peace of mind to go with it,'' Mr. McGuinness says.

To date, approximately 600 prospective future students have been enrolled in the first and most visible single-institution prepayment program, at Duquesne University in Pittsburgh, according to Fred S. James & Co., Inc., a New York insurance brokerage that has helped private colleges and universities establish prepayment programs.