Gov. Rick Perry has signed a new law that allows Texas families to prepay college tuition costs for the first time since 2003 — and with greater flexibility in purchases.

But if it catches on, the Texas Tomorrow Fund II, which will open in 2008, could wind up pushing prices higher for future low-income students, according to some experts.

Under the new program, families will be able to prepay undergraduate tuition and fees by purchasing tuition units. A full year's tuition, or 30 hours of class, will require 100 units. Prices will vary based on whether the buyer chooses to purchase units for a community college, the average four-year university or the highest-priced four-year institution in Texas.

Each year, the Texas Prepaid Higher Education Tuition Board will set the new prices for tuition units according to what Texas colleges are charging that year.

Using today's actual college prices in Texas, families would pay about $23 per unit for community colleges, and $57 or $81 per unit for four-year universities, based on data supplied by the Texas Comptroller.

The new plan also will allow low-income families to receive matching contributions.

Supporters praise the plan for being more affordable and accessible than the state's original prepaid plan that forced families to buy two, four or five years of college. It closed four years ago.

"This way anyone can spend whatever they want and still pay for college," said state Rep. Geanie Morrison, R-Victoria, who co-sponsored the bill to create the new prepaid tuition plan. "And regardless of income, they will be able to start saving."

Morrison got the idea for the new Texas Tomorrow Fund II after studying a similar plan in Tennessee.

The new program is expected to help the state reach its goal of getting more Texas students to attend college.

"Studies show that the fact that a kid has an account in their name can have a real impact on their achievement and their belief that they will go to college," said Don Baylor, senior policy analyst at the Center for Public Policy Priorities in Austin.

Families will be able to move cash from 529 college savings plans and the state's original prepaid tuition plan into the new program.

State officials say the new pricing method will minimize the impact of inflation, an issue that undermined the original prepaid tuition plan. Because college price inflation ranged between 7.6 percent and 23 percent in Texas in recent years, the original plan is about $110 million in the hole, according to the state comptroller.

"There's no risk to the state," Morrison said of the new plan.

If the new fund's investments don't keep up with the price of college costs, universities and colleges will have to take a loss when a student enrolls with a prepaid plan, according the new law.

That provision could pit universities against the state's prepaid plan later, some experts say.

"When university officials set tuition, the last thing on their minds is the markets," Baylor said. "They are looking at the costs to provide services. If I were hedging bets, I would bet that tuition increases will exceed investment increases."

Baylor worries that colleges and universities would make up the losses by raising tuition on students whose families had not prepaid for classes. That would be mostly lower-income families.

State officials say not to worry, they could repay some of the losses under the new program. If necessary, the state could add a service charge on purchases, up to $25, and then use that fee to reimburse the universities.

Still, families should weigh their options before investing in the Texas Tomorrow Fund II, advisers say. Unlike other 529 and college savings plans, the money placed in the new fund could not be used for books, housing, food or transportation during college. So a large portion of college expenses will have to be funded otherwise.

Historically in Texas, tuitions and fees have made up about 25 percent of the annual costs of going to a public institution, according to George Torres, senior adviser for congressional and legislative relations to president of Texas Guaranteed Student Loan Corp.

Whether the new prepaid tuition plan succeeds also will depend on the level of marketing, Torres said. And state officials will have to find a way to convince low-income families — who often have minimal free income — to use the plan.

"Prepaid plans are targeted at middle- to upper-income families who have the money upfront to spend," he said. "It doesn't seem like the sets of programs we have in Texas are matched to what we are trying to do to close the (college) gap."

The original prepaid tuition plan has about 158,000 accounts.