When Bill Hardie opened the statement for his sons’ Oregon 529 College Savings Plans last fall, he was prepared to see losses. What he wasn’t prepared to see was a more than 30 percent drop in the amount of money he and his wife, Carrie, had saved for the kids to go to college.

“I knew there was going to be some kind of a loss,” he said. “But yeah, it was a larger loss than I expected, especially in a conservative fund.”

Hardie’s not alone. Families using the Oregon 529 College Savings Plan, a program allowing them to set money aside for future college tuition and expenses, saw significant declines in their plan values in 2008. Amid the economy’s plummet, the program dropped about 25 percent, but some participants saw their funds dwindle by more than 30 percent.

Now, Oregon lawmakers are taking steps to prevent future problems with the savings plan and have launched an investigation into the funds that saw the largest decline.

But for students who plan to enroll in college this fall, those steps don’t make much difference.

Hardie’s sons are among that group. Matson Hardie, 18 and a senior at Summit High School in Bend, will head to college this fall. Garrett Hardie, 15 and a freshman at the school, has just three years until college.

Matson plays football and runs track, and Hardie said if he could get some financial aid to play a sport at college, that would be ideal. He’s applied to Oregon State University, Western Oregon University, Southern Oregon University, and several schools in California and Colorado.

“It does reduce the options as far as what we have available to spend,” Hardie said. “Some of the schools that are more expensive are not going to be an option.”

Tax-free withdrawals

The Oregon 529 College Savings Network allows for a state tax deduction of as much as $4,000 on contributions each year, and all of the plan’s earnings are untaxed. Withdrawals from the plan are tax-free as long as they’re used for qualified college expenses like books, tuition, room and board, and fees.

One of the plans offered by the network allows parents to save for college based on how many years they have until their children will go to college. As time draws near, the plan is supposed to become more conservative, removing money from more volatile stocks and placing it into safer investments like bonds.

But that didn’t happen for many families whose money was invested in the plans, because even as their students moved close to the college years, much of their money stayed in stocks, in either the OppenheimerFunds Core Bond Fund or the OppenheimerFunds Limited Term Government Bond Fund. According to information from the Oregon Treasurer’s Office, the core bond fund dropped 38 percent in the second half of 2008, and both funds were part of several Oppenheimer Funds portfolios used by the savings network.

State Treasurer Ben Westlund, who was not treasurer in 2008, declined to comment for this story.

A consulting firm hired by the savings plan board found the core bond fund had a high level of risk and problems with long-term stability.

For the Hardie family, that meant drops of more than 30 percent, and Hardie said he believed the funds were too aggressive for how near his students are to needing the money for college.

“It was supposed to be in a conservative type of fund, which is not going to potentially see as much of the return, but the strategy is that it’s not supposed to be as volatile,” Hardie said.

The Hardies are not alone.

Ray Gertler faced a similar situation. He’s put money into an account on a monthly basis for his son, also a senior at Summit, and has used the Oregon 529 College Savings Plan since it started.

“People like myself assumed essentially that they’re a state plan, administered by the treasurer, and it’s going to be managed responsibly,” Gertler said. “In September, we were looking at less than a year to go, and what I found was when I opened the statement … I think the fund lost between 25 and 30 percent.”

Gertler said he’s concerned that his son’s money was placed in a category for students with one to three years remaining until college.

“They’re in this one-to-three year category, even though there’s less than a year to go to college. That’s very unclear, and I think most people would interpret that as misleading and erroneous,” Gertler said. “One would think with less than a year to go, you’d want to do everything you can to protect investments.

“You can’t recapture that in a year. You can’t recapture that in three years.”

Preserving what’s left

Gertler took the remaining money and put it in what he calls an ultraconservative portfolio. He said he’s not trying to make the money back. Instead, he’s just trying to preserve what’s left of the tuition, since it’s to be used in less than a year.

“If you’re planning on going to a private university, you lost almost a whole year of tuition in three months,” Gertler said.

While he’s frustrated by the loss, he said he feels fortunate that, thanks to other planning, his son will likely still be able to go to the college of his choice.

“But most people in this situation will be more dependent on the scholarship package being offered by a private college,” he said.

Gertler said that if he had it to do over again, he’d want a little more certainty.

“If Oregon is going to manage the plan, it would seem to me they’d need to have some management responsibility,” he said. “I’d want to know there’s some oversight.”

That’s the idea behind some of the work the treasurer’s office is doing right now. First, the office has asked Attorney General John Kroger to investigate whether Oppenheimer Funds violated Oregon’s Unlawful Trade Practices Act or Oregon securities law.

Oregon politicians are asking Congress to allow families to borrow money through student loans, then repay the loans with funds from their 529 accounts when the accounts bounce back. Usually, federal tax laws do not allow 529 account monies to go to repaying student loans.

Hardie said he’d consider that.

“It would at least give you a little more flexibility,” he said. “But I don’t see those losses being made up anytime soon.”

Money withdrawn

In January, the board overseeing the Oregon 529 College Savings Network withdrew all money from the two offending funds. It is also supporting legislation currently in the Senate that would allow families to prepay tuition at today’s rates for future use. The money could be invested and earn interest, but the prepaid tuition credits would be guaranteed with a contract, so students would be certain the tuition credits would be there, even if the market plunged like in 2008. According to the treasurer’s office, that plan would be part of the Oregon College Savings Network.

Rep. Judy Stiegler, D-Bend, is a sponsor of the bill.

“My philosophy is, anything we can do to help people access higher education opportunities, I’m in favor of,” Stiegler said. “I see this as a complement to a 529 college savings plan.”

Complement to 529s

Stiegler said there are several technical issues with the plan, including how to ensure colleges and universities won’t take a hit in the amount of tuition they receive should the market plummet again. Stiegler said the bill is directed to schools in the Oregon University System, but that the bill could allow funds to be used for private schools or out-of-state universities as well.

And if passed, the bill, Stiegler said, would allow families a bit more stability than a 529 plan.

“I think that, as opposed to college savings plans that are more susceptible to market, this is envisioned as more secure,” Stiegler said.

In January, Hardie sent an e-mail to the Oregon Treasurer’s Office expressing his dissatisfaction with his sons’ plans.

“My son’s ‘conservative’ college savings account lost 38% in value in 2008. He will be attending college next year and now has much less to work with,” Hardie wrote. “The state treasurer and Oppenheimer have violated the public trust and should be held accountable. The mismanagement of this fund is appalling and unacceptable. Heads should roll!”

Hardie went on to write that families who have “diligently set aside for years to help pay for one of the most important things in life, a college education,” are now left with fewer options.

He didn’t hear back from the office until March.

“I have a feeling they were hearing from more than just me,” he said.

While Garrett’s account will have more time to make up the losses, Hardie said he’s not sure about investing in it anymore.

“Since I got that statement, I haven’t put any money in that account,” Hardie said. “I’m looking at other options.”