The reasons not to are obvious: investors take on risk when these investments are made and insurance will only encourage them and the funds to act in a more reckless manner, these are private individuals and their wealth (and the loss thereof) is not a public matter, though administered by Oregon, anyone can participate meaning the state may bail out non-residents, etc.
But a case could be made for at least a one-time insurance payment for these families. These families are doing the state a favor in some senses - they are being prudent with their money and will therefore be more likely to send kids to college, be less likely to need state assistance to do so and will encourage future families to undertake the same kind of long-range planning that will increase the likelihood that Oregon's children will attend college in greater numbers and need less state assistance.
Though the actual loss to these families is severe and this could have a measurable impact on Oregon's higher education outcomes, the bigger problem is the fact that the publicity about the losses will be hugely dissuasive and will likely serve to limit participation in these funds. This is a problem for the state because by encouraging families to invest on their own these families are limiting their reliance on state support and are increasing the percentage of college educated Oregonians. This is a publicly administered plan and is promoted by the state.
So perhaps a one-time bailout is called for. Something like 75 cents on the dollar for losses sustained in the most conservative plan. I realize that this will never happen and perhaps the adverse effects I outline are really not that bad, but it is worth contemplating...I suppose. At any rate it was a little thought experiment I was running with myself while jogging yesterday and I thought the case could be made for it. What do you think?