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Educational Assistance 1


The Texas Tomorrow Fund, through its scholarship foundation, will raise contributions from individuals and corporations to provide tuition and required fees for children affected by the war effort.


In 1995, the Texas Legislature enacted House Bill 1214, which created the Texas Prepaid Higher Education Tuition Program.[1] The program was placed in the Comptroller’s office, with the comptroller serving both as chair of the board governing the program as well as its executive director. The program is marketed by the name of the trust fund set up to invest proceeds from contract sales, the Texas Tomorrow Fund (TTF). The program allows purchasers to prepay up to five years of tuition and required fees at a state college or university. The contract provides a guarantee that the TTF will pay the tuition and required fees when the beneficiary attends college, no matter how high the tuition and required fees are at that time. The beneficiary must be named when the contract is bought unless the contract is purchased as a scholarship. The beneficiary must be a resident of the state of Texas at the time the contract is entered into, with an exception made for a child of a non-custodial parent who is a state resident.

The TTF is a constitutionally–protected fund and investments in the Texas Tomorrow Fund are guaranteed with the full faith and credit of the state. As of mid-2001, the Texas Tomorrow Fund has sold more than 115,000 contracts, and about 6,000 students are attending colleges and universities with prepaid tuition funds. The Texas Tomorrow Fund is considered a Qualified Tuition Program (QTP) as defined by Section 529 of the Internal Revenue Code.

Federal tax law requires that a beneficiary be a named individual when a QTP account is created except when the account is created as part of a scholarship program operated by a state or local government or by a 501(c)(3) entity.[2] In that case, contributions can be collected and an account created for a beneficiary who is named at a later date. The Texas Legislature has included a scholarship component in the Texas Tomorrow Fund. It was set up to encourage private corporations and community, civic or religious groups to provide college funding for low-income or disadvantaged young Texans. The Texas Prepaid Tuition Scholarship Foundation is a direct support organization of the Texas Prepaid Higher Education Tuition Board and is charged with administering a program of soliciting and dispensing funds for Tomorrow Fund contracts for scholarship purposes. The Texas Prepaid Tuition Scholarship Foundation is a tax exempt 501(c)(3) organization, so contributions to the foundation are tax deductible.

The war against terrorism already has resulted in many casualties. Several thousand children lost at least one parent after the attacks on the World Trade Center and the Pentagon. The war on terrorism undoubtedly will see more casualties from both direct military operations and possibly from additional terrorist attacks on civilians in the United States. Texas will provide assistance to children of armed forces service members who are orphaned as a result of the war effort or who have a parent who is disabled as a result of his/her participation in the war effort, as well as children who are orphaned or whose parents are disabled in a terrorist attack. A critical part of that assistance is to provide a college education for these children.

The state’s Hazlewood Act provides a tuition exemption for the children of servicemen killed or disabled in the line of duty. However, benefits are reduced by the amount of any federal aid, such as a Pell Grant or the GI Bill, which the student receives to attend college. Because the GI Bill added significant educational assistance for dependents in 2000, children of servicemen killed or disabled in the war likely will not receive the Hazlewood exemption.

The scholarship foundation represents an excellent vehicle for raising contributions from private corporations, individuals and other groups who want to support the war. Because contributions can be solicited without first naming a beneficiary, the foundation can take an active role in raising funds for prepaid tuition scholarships. Tuition contracts can be created for unnamed beneficiaries and the contracts can be awarded as the need arises.

Therefore, the Texas Prepaid Tuition Scholarship Foundation will raise funds for tuition contracts for children directly affected by the war effort. When a child loses a parent as a result of a terrorist attack or because of the military action, the foundation will award a contract to that child. If a child has a parent who receives a medical discharge from the military as a result of the war against terrorism, that child also will receive a scholarship. The Texas Veterans Commission will determine eligibility for the scholarships in the case of a child of a military service member. If the child is eligible for a tuition and fee exemption, the prepaid tuition scholarship will provide funds to help cover other costs for attending college, such as room and board.

Fiscal Impact

Substantial financial resources will be required to implement this recommendation, and the private sector already has contributed funds to the effort. The foundation board will raise the funds needed to provide scholarships from private sources.

[1] TEX. EDUC. CODE ANN. Chapter 54, Subchapter F.

[2] U.S. Code, Title 26, Section 529, (e)(1)(c).