Section 5A. The Authority shall, subject to paragraph (f1/2) of section five, establish a college opportunity program, which shall, to the extent feasible, include the following elements:—

(a) In cooperation with the state treasurer, the Authority shall make available commonwealth bonds, including bonds in small denominations or units of participation in commonwealth bonds, for purchase on behalf of named beneficiaries who are anticipated to use the payments on said bonds to provide for costs of attendance at institutions of higher education. Said bonds or units of participation, either or both of which shall be referred to for purposes of this section as college opportunity bonds, shall bear interest at a variable rate determined by reference to a financial index reflecting inflation in costs of attendance at such institutions. No payments of interest or principal on said bonds shall be made except upon maturity or earlier redemption. Said bonds shall be made available with varied and flexible redemption and maturity dates, as required to accommodate the savings requirements for beneficiaries who intend to use the principal and interest on said bonds to provide for costs of higher education. The Authority shall make the arrangements necessary to enable purchasers of college opportunity bonds to make purchases by convenient means, including but not limited to the use of payroll savings plans or other recurrent payments of relatively small amounts. Purchasers of college opportunity bonds may be required to pay fees or to buy said bonds at a premium to cover all or part of the costs of issuance, of administration of the college opportunity program, and of the cost to the commonwealth of associated financial arrangements to limit or control the commonwealth's interest costs for college opportunity bonds.

(b) The Authority shall enter into tuition agreements with public and private institutions of higher education to ensure that tuitions charged to college opportunity bond beneficiaries do not rise at a rate greater than the return on college opportunity bonds. Under such agreements, such institutions will agree, as a condition of being accepted as participating institutions in the college opportunity program, that the tuition charged to a student who pays for said tuition with the proceeds from principal and interest payments from college opportunity bonds will not increase over the tuition at the time of original issuance and sale of said bonds at a rate greater than the interest rate on said bonds and to such other terms as the Authority may require.

(c) The Authority shall, in consultation with the state treasurer, establish rules and regulations for the redemption of college opportunity bonds. Such rules shall provide that such bonds, when redeemed for use in meeting costs of the named beneficiary's higher education at a participating institution or for purchase of additional college opportunity bonds, shall be redeemed for the full value provided for pursuant to paragraph (a). Such rules shall further provide for one or more penalties that reduce such redemption value when college opportunity bonds are redeemed for use in meeting costs of the named beneficiary's higher education at an institution other than a participating institution or when they are redeemed for use for other purposes. Such rules shall further allow for the substitution, in appropriate circumstances, of a sibling or other close relative in place of the named beneficiary, for the purposes of the restrictions imposed by this paragraph and may allow for early redemption in cases of extreme hardship.

(d) The Authority shall study, and shall consult with the state treasurer and the secretary of administration and finance concerning, the practicability and the desirability of the commonwealth entering into financial arrangements, pursuant to section thirty-eight C of chapter twenty-nine, to limit or control the potential costs to the commonwealth of meeting its interest obligations on college opportunity bonds.

(e) The Authority shall investigate the possibility of, and, if feasible, shall negotiate, reciprocal agreements with other governmental entities offering similar college savings plans. Such agreements shall be designed to allow named beneficiaries of college opportunity bonds to use such bonds for educational costs, and to receive the benefits of tuition agreements, at the widest possible range of institutions of higher education, and to allow institutions of higher education in the commonwealth to receive the benefits of participation in college savings programs established by other governmental entities.