Brent Reader - College Planner

The Coming Student Loan Crisis

noreply@blogger.com (Brent Reader) — Mon, 05 May 2008 17:53:00 +0000

In previous posts I talked about the potential student loan crisis ahead. Well, it's no longer a potentiality. The problem is upon us.

Permit me to get a bit "eggheaded" here for a minute to recap what lead to this problem:

The nation's banks are currently recoiling from a massive loss of liquidity (cold, hard cash) normally provided by Wall Street investors, after greedy, multi-billion dollar hedge funds and private equity groups (the guys with all the money) grew discontent with the under-performing mortgage market (decided they weren't making enough money), which was partly the result of sub-prime mortgage risks being improperly tranched with "A-paper" mortgage-backed securities (high-risk loans and some fraudulent high-risk loans were mixed in with low-risk loans, aka borrowers with good credit).

This began to occur at the same time as people around the country losing their "greed factor" that had driven real estate speculation for the past 5 years. They opened their eyes to the general oversupply of new construction and existing property, and realized that prices had shot way too high. It's the basic economic principle of supply and demand - oversupply decreases market demand, prices drop as a result.

This created the "perfect storm", as real estate values dipped below the balances of the loans made against them, creating "upside down" positions for many home owners and trapping them in their current loans, many of which were hybrid adjustable-rate mortgages, (made at a time when ARM rates were much lower than fixed-rates, and therefore preferable to many borrowers).

A Hybrid ARM has a period of fixed rate and payment, usually 2-5 years, followed by an adjustable rate based on current money market indexes like the Prime rate, the Treasury bill average, or the London Interbank Offered Rate (LIBOR). Most sub-prime loans were made using the Prime rate, which went from an all-time low in 2002 to almost an all-time high in 2006, just as so many of these ARMs began to adjust!

In other words, lots of folks became trapped with huge payments, and they can't refinance and they can't sell to get out from under it. This is what is behind the rising rate of foreclosures, which scares the living daylights out of the banks and their Wall Street buyers.

There are around a quarter million homes in some state of foreclosure nationwide. Yes, that is a big number, but let's look at it in perspective: That represents only 1 out of 538 homeowners! That would be like having a room full of 538 people, with each of them giving you $100. You would have $53,800. Let's say one of them raised their hand and asked for their money back. You would still have $53,700! Big deal, right?!! While the mortgage market doesn't quite work like that, you get the idea. The HUUUGE majority of homeowners are doing fine and making their big, fat front-end interest loaded payments on time.

The real issue no one in the news is talking about, except the guys on CSPAN or MSNBC, is that investors are not making as much money as they want to.

It is the greed of investors and the fear from banks that investors will make them "buy back" the loans they sold on Wall Street, that has created the "credit crunch" we hear so much about on the news. And the media certainly isn't helping, as they make money scaring us. In the end, it all becomes a self-fulfilling prophecy.

Well, this situation has now spilled over into consumer lending, with over 50 banks (Fifty!!!) pulling out of the FFEL and private student lending market. Other banks that still provide student loans are increasing their credit requirements and tightening guidelines, leaving a lot of parents with less-than-perfect credit wondering what they are going to do to continue funding their children's education... and many parents with perfect credit surprised when the bank refuses to provide any more loans.

This is definitely a big problem for parents that rely mostly on loans to fund college, and an even bigger problem for the colleges that rely on these banks to provide families with the money to pay their exorbitant cost of attendance.

Just how big is this problem? Big enough that the US government has hastily stepped in to try to provide a solution (again, taxpayers cleaning up the mess caused by a greedy finance industry). Here is an article released today from Reuters:

NEW YORK (Reuters) - The U.S. Education Department will be ready to process emergency advances for student loans by June 1, the Wall Street Journal said on Monday, citing a letter to be sent Monday to state agencies that would enforce the program.

Under the plan, the Education Department would temporarily be allowed to pump liquidity into the sluggish secondary market for federally guaranteed student loan debt.

The move comes under a student loan market stabilization plan that is aimed at helping lenders who have warned of a potential loan shortage in coming months as millions of students seek financial aid for college.

The plan, expected to be signed into law, is also meant to let the Education Department funnel capital for loans to state guaranty agencies under a "lender of last resort" program for students and for colleges if they faced loan shortages from other sources.

Education Department officials were not available immediately for comment.

If you are a parent that will be relying on student loans to fund your child's college education, then you MUST attend my emergency teleseminar next week. Normally, I reserve these informative sessions ONLY for my clients, but I feel this is too important to withhold from the public. Time and Date will be announced later this week.

Update on what we're doing right now

noreply@blogger.com (Brent Reader) — Thu, 03 Apr 2008 17:36:00 +0000

Hey guys. Brent here.

First, a joyous announcement: we are officially done with FAFSAs. No more forms for another 9 months. Woohoo!!!

We had a few of you freaking out about getting your forms done this month. Just remember that every school has their own deadline, and our deadline for each of you with upcoming freshmen was whichever school had the earliest deadline.

We have to operate much like an ER, "triaging" our patients based on who needs to be seen first. In other words, who has the earliest deadlines.

So if your FAFSA was due February 15th, your's was done well before that date. Those of you with April 15th deadlines (yeah, that's late), we took care of you this week. Whatever your situation is, we meet your deadline with plenty of room to spare.

So for future reference, guys: chill out, relax, and let us do our thing. That's why you pay us!

Second announcment: I am going to be going to Denver tomorrow morning and will be unavailable for appointments this next week. So if you need to see me, get with Candy and have her schedule something for you the week of the 14th.

I'll be sure to take pictures and share them with you guys when I get back!

An Important Key to Success

noreply@blogger.com (Brent Reader) — Wed, 26 Mar 2008 20:57:00 +0000

"Do not wait, the time will never be 'just right.' Start where you stand, and work with whatever tools you may have at your command, and better tools will be found as you go along."

I came across this fantastic quotation by Napoleon Hill, author of the quintessential handbook for entrepreneurs, Think and Grow Rich. This is truly a lesson every person can apply, whether in the context of your education, career, business, marriage, parenting, etc.

This is not to say you should charge forward without making a plan and considering the risk involved.

But we all have to start somewhere. If you wait until you think you're "ready", you'll never begin. Stalling around is a byproduct of the fear of failure. And if you never take action, never implement your ideas... you will fail for certain.

And even if you go for it and you do fail, it is nothing to fear. Failure is one of our best teachers. Robert Kiyosaki, millionaire businessman and best-selling author or Rich Dad, Poor Dad, talks about failing in 3 different businesses before finding the one that took him to success. Donald Trump had to declare Chapter 11 bankrupty on his failed real estate ventures a decade ago, and today is one of the wealthiest and most recognized entrepreneurs in America. I myself experienced many small failures within my business before finding what works best.

So have some faith in your own abilities! And if you don't know where to begin, find someone who is successfully doing what you want to accomplish, leverage their knowledge and experience, and do what they do. This is an age-old format of master and apprentice that our society has, in many ways, forgotten, but you still see remnants everywhere - whether it's a grandmother teaching her granddaughter how to sew a quilt, or the CEO of a multibillion dollar corporation grooming his replacement.

Many people seem to be waiting for "just the right time" to begin planning and saving for their child's college education. With prices escalating 7-8% each year with no promise of a solution from the Department of Higher Education to fix what they themselves call a "broken" financial aid system, waiting and doing nothing is a luxury that you simply cannot afford.(Well, unless you're Donald Trump.)

So you have 2 choices:

1) Get started today. As in, right now. Don't be afraid to slog through the 878 page guidebook on the rules of financial aid to position yourself to get the most free money. Ask the meaty, hard-hitting questions of high school counselors, college admissions officers, and financial aid officers. Find out what they're looking for in their applicants. Leave no stone unturned in your search for scholarships. If your child is already in high school, get them to really focus on their interests, abilities, and values, and start forming their list of 6-8 colleges they want to attend. It's a big job, but you've got to start somewhere.

2) Find a professional who already does this successfully many times over through a proven process. Leverage their knowledge and experience to help you acheive your goal as quickly and efficiently and stress-free as possible.

For those of you who prefer the latter course of action, you need to come to one of our valuable, free workshops in April. They're happening the 12th and the 19th at the Shewmaker Center in Bentonville, from 10:15 - 11:45 am (don't worry, they're both Saturdays).

If you've already been to one of our workshops, and you haven't yet been in to see us but have been meaning to, well, as my Dad would have said... quit yer lollygaggin'!!!

Private College Loans May Spell Trouble For Students

noreply@blogger.com (Brent Reader) — Fri, 07 Mar 2008 19:09:00 +0000

Well, it's just as I was saying in last month's post about private student loans. Here is an article from Minnesota Public Radio that ran 2 days ago. (Statements in bold red are my modifications for emphasis.)

At the end of the article, let's talk about a few of the mistakes this young man made, and how they can be easily avoided.

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Private college loans may spell trouble for students
by Art Hughes, Minnesota Public Radio
March 5, 2008

A flagging economy, high tuition costs and the faltering credit market are all making it harder for college students to find relief from piles of debt. In recent years, students have turned to private lenders to cover escalating costs. A new report, though, warns of indications that more students may begin defaulting on those private loans.

St. Paul, Minn. — When he first started studying architecture at the the University of Minnesota, Tom Hilde paid about $6,300 a year in tuition. By the time he graduated in the spring of 2007, that number had climbed to more than $8,600 a year. In that time, Hilde built up $30,000 in loans. The reality of that choice is becoming clearer now that he's paying the loans pack.

"When they tell you you have a six-month grace period, in the eyes of a college student that seems like more than enough time to go out and get a job and get set and ready to pay for your loans," he says.

Hilde first turned to federally administered Stafford student loans. But when he reached his loan limit, he felt he had no choice but to turn to loans from private lenders. Now, as he pieces together internships in his field and other low-paying jobs, the loan payments are a burden.

"I called them and told them I could pay my loans for a couple months, but I'm pretty sure I'm going to run out of money eventually," he said. "So, is there something I can do right now to avoid running out of money really quickly--maybe lower my payments or get a deferral and then start paying again when I have a steady job?"

He quickly secured a deferral for his federal loans. But the private lenders would grant him no leeway.

A report released by the National Consumer Law Center highlights the problem faced by students and recent graduates like Hilde: steep tuition increases force students to take on more and more debt from private lenders. Then, a tight job market makes it hard for them to pay the loans back.

The private student loan market has exploded in the past five years and students are just now waking up to the long-term consequences, according to the center's staff attorney, Deanne Loonin.

"They're just not in the economic shape they hoped they would be in. They're just not able to pay their loans. They have huge amounts of debt. It affects their credit. It affects their ability to build assets for the future," she says.

Private lenders are not required to release information about default rates. But student surveys indicate a growing negative trend, Loonin says. In addition to higher tuition and persistently low federal loan limits, sophisticated marketing has greatly increased private lenders' share of the market, she says.

"One thing they do is play up the ease of getting a private loan as opposed to having to fill out a form that's required for the federal loans. There are a lot more hoops to jump through, but it's worth it because not only are the federal loans more affordable, there are a lot more protections that come with it."

Many, if not all, of what college administrators refer to as "alternative loans" are offered at variable interest rates. That's the same practice that fueled the foreclosure crisis in the home mortgage industry once the rates started rising. In addition, private lenders are not bound by regulations requiring flexible repayment options.

It's a bad mix that is sometimes difficult to convey to students trying to balance studies and finances, according to Dakota Community College Financial Aid Director Scott Roelke.

"There's been a rise recently in direct to consumer marketing of student loans. You've probably seen television ads where they will tell the student you can borrow $40,000 today."

Roelke is the Minnesota president of the National Association of Student Financial Aid Administrators. Both Roelke and his counterpart at St. Olaf College, Kathy Ruby, say they don't see signs yet that student borrowers are defaulting at significantly higher rates than before. But that could very well change as the mortgage crisis and other economic factors make it more difficult for lenders to make a profit, Ruby says.

"The tightening of credit market has also affected private student loans so that they're becoming harder to borrow, is what we're hearing. And the players in the market are changing. The market is shifting in terms of what is available."

Federally backed loans are almost always the best, first choice, Ruby says. That's a lesson recent graduate Tom Hilde says he now appreciates.

"Pretty much I've just been paying my normal monthly payments, knowing that I will be out of money soon enough," he says.

Hilde says he probably won't default on the loan, but will have to turn to his parents for help. Or he may enter graduate school which automatically puts student loan payments on hold, but would hike up his debt even further.
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Now: What mistakes did Mr. Hilde make? The very same mistakes soooo many other college students and their families make every single year:

Turned first to borrowing the money, as opposed to looking for other sources, resulting in $30,000 debt.
Didn't ask the right questions of his private lender before signing on the dotted line.
Did not adequately plan for his monthly repayment schedule and take into account post-college cash flow on a worst-case basis.
This is the bigeeeee: he waited until after he graduated college to pursue an internship in his field! No connections in the workforce = no/fewer job prospects = low paying job = inability to repay.

At College Planning Specialists, we make sure kids know what they're going to college for, that they pick the right majors and schools for the careers they want to pursue, and that they pursue internships in their fields early, so as to ensure employment upon graduation at salaries 10-15% higher than their peers.

There Is Now $130 Billion Available In Financial Aid, But...

noreply@blogger.com (Brent Reader) — Sat, 01 Mar 2008 20:41:00 +0000

Here's an article that appeared recently in the high school paper of Palo Alto. It details that, although there is a huuuuuuuge amount of financial aid out there ($130 Billion), receiving it is more competitive than ever.

When you're done with the article, mosey on over to www.nwacollegeplanners.com, which has important information you can use to see how you can get the inside track on qualifying for your share.

Here's the piece:

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College tuition prices out of control
Increasing college tuition places more stress on college bound students.

Posted Mon Jan. 28, 12:42:16 PST 2008By Kevin Harvey of The Campanile.

As most Palo Alto High School students know by now, the competition involved with college admissions is enormous and steadily increasing. Of the 2008 national graduating class of 3.2 million students, about 30 percent will attend a college or university, the largest number in United States history.

Many students resort to the help of private college counselors for guidance, reassurance and such preparation as aid in essay and application writing.

Last year, over 120,000 high school seniors applied to colleges and universities with the help of a private counselor. This increasing competition allows colleges and universities to raise their tuition and application prices.

As the competition and tuition prices continue to increase, the number of students who are able to attend colleges and universities will decrease. However, according to The College Board, there is more than $130 billion available for financial aid this coming year.

Despite this, financial aid will continue to be increasingly difficult to receive because of the increasing number of eligible applicants.

Private colleges and universities are being run like corporations, striving to gain profit and forgetting about providing their services for a reasonable fee. Universities are raising their tuition prices because they can, due to demand.

The price of tuition among private universities increased by 6.3 percent this year, while public colleges increased tuition by a drastic 6.6 percent, according to The College Board. Moreover, The College Board recently announced that it will no longer support the Federal Family Education Loan Program, one of the largest student loan providers in the nation. After Oct. 15, the College Board refused applications.

According to The College Board, students should expect to pay between $95 and $1,404 more for tuition this year than last year, depending on the type of college or university.

In 1990, the tuition price for an undergraduate student living on the campus of Stanford University was $14,280 per year. The tuition price increased about 300 percent to an astonishing $44,267 for the 2008 academic year.

Many people assume that this is because Stanford is expanding their facilities and needs to increase tuition prices to compensate.

These assumptions are incorrect. Almost all universities in the United States pay their expenses, including their staff members' salaries, with the fees they charge for application papers. The fee that they charge attending students for tuition is almost entirely for profit.

However, many universities, such as the University of Michigan at Ann Arbor, are trying to prevent undergraduate tuition prices from increasing. But graduate school tuition prices have heavily increased to compensate for the profit lost through keeping the undergraduate tuition relatively low.

As tuition prices increase rapidly, many students apply for financial aid, but most students who apply for aid do not end up receiving it. This problem is most common among middle class families because their income is not low enough to make them completely dependent on financial aid, but not high enough to prevent them from struggling with payments and tuition costs.

If colleges and universities lowered their tuition costs, they would allow more students that were previously dependent on financial aid to attend.

This would raise profit margins because universities would have more students attending who pay lower tuition costs.

This story originally appeared in The Campanile on January 28, 2008.

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Want inside information on financial aid and "How to Pay for College Without Going Broke?" Visit www.nwacollegeplanners.com

Seasonal Outbreak Of Disease Among Students

noreply@blogger.com (Brent Reader) — Mon, 18 Feb 2008 18:37:00 +0000

Relax, I'm not talking about Ebola! I'll get to the subject of the post in a minute.

First, I want to give you parents a quick update on what we've been doing here in the office lately. I can even sum it up for you in one word:

FORMS

As in: lots and lots of them. For each one of you, it’s several hours worth of our time to get everything coordinated, and accurate; and I have to work on each one personally, because I want to assure that there are zero mistakes. And, truth be told, because I’m paranoid.

Now, why I’m telling you this is that every year at this time, people start to get cranky about not being able to reach me. Well, it’s kind of like calling your accountant during the three weeks before April 15th. If they don't get back to you right away, it’s not that he or she doesn't like you, it’s just that there are only so many hours in the day, and they are up against a deadline.

Or, in my case, several different deadlines.

So, just be patient with me. We're working long hours to get this done as fast as humanly possible (while still being perfectly accurate). If you've got an issue that can wait a couple of days... it's going to wait.

On the other hand, if you've got some last minute stuff to do that has to be done before we can finalize everything, don’t worry. I know that and won't forget you, nor will I let anything fall through the cracks.

Oh, and calling me to tell me it's the 12th, and you’re freaking out because your form is due on the 15th does NOT help things along.

All it does is cause my staff to have to stop what their doing (which is your forms, by the way) to calm you down.

We've done this before, remember? That's why you keep us around.

So please "be cool, my babies!" and let us do what we do.

In the meantime, I thought I'd take a break from forms and numbers to talk about a disease that affects most of your kids. In fact, it's such a problem that many parents, who are not clients, have offered to pay me just to handle this for them!!!

I believe the CDC in Atlanta refers to it as Senioritis, aka "the Senior Slump."

In fact, if it's affecting your kid's performance, please feel free to forward this to them and let 'em know it's from their Uncle Brent.

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Here's the situation:

This is the time of year that some kids really begin to slack off. They feel like because the applications are done, the colleges won't care how their grades are or what classes they are taking.

This is wrong, wrong, WRONG!

First off, let me make you feel better. It's not just your kid, it's EVERYBODY'S kid. Ok, well almost everybody’s kid. You overachievers, you know who you are...

Anyway, it's so bad that Charles Reed, the chancellor for the Cal State system called 12th grade "the biggest wasteland in America." And right now, even as I write this, 9 state governors are seeking to completely overhaul the senior year, saying that it’s currently a "waste of the student’s time and taxpayer’s money."

Crazy, huh?

So, don't beat your kids too badly if they've got it. BUT... that does NOT give them an excuse to totally slack off and coast until summer.

Here's why: (seniors, are you paying attention?)

First off, the slacking is SO bad that ½ of the colleges nationwide have to offer remediation (think: remedial). And I’m not talking about community colleges at all. I’m talking 4 year schools ONLY. Half of them!

What that means in plain English is that if you slack off and don't pay attention this year, no problem, you'll just have to re-take those classes once you get to college. Which means, it's longer until you graduate. Which, of course, costs your parents more money and delays you getting out into the real world and making serious money of your own.

Oh yeah, and that’s IF you get in in the first place.

Here’s what I mean by THAT:

If you are applying to any sort of competitive school, meaning anything other than a community college or open enrollment university, they WILL be looking at what classes you are taking your senior year. And they WILL notice if you went from challenging yourself by taking, say, 6 academic classes your junior year, to only taking 4 classes that are all electives. And that WILL affect their decision.

This can be the difference between getting into your first choice… and your last... or not getting in at all.

Now, on the same subject, once and for all: YES! YOUR SENIOR YEAR GRADES DO COUNT. A LOT!

Got it?

Here’s what happens: If you are borderline for getting in to a college, they will call your high school to request the latest copy of your grades. Which, by the way, you gave them the right to do when you filled out your application. And if they notice that you are slipping, they probably will not admit you. Or, they can withdraw your admission even after they've offered it. I know, it’s not "fair", but I've warned you.

Story: We had a student last year who was offered admittance to SMU… on one condition: she had to get a "C" or better in chemistry her senior year. Can you guess what happened?

Yep, you got it: she got a "D +".

So her admission was revoked, and NOTHING we could do would get them to reinstate her. Not offering to retake the class over summer, not getting the teacher to redo her grade with extra credit. Nothing.

Because, basically, they said that she had shown them that she didn't have the discipline to succeed in college. Goodbye SMU, hello NWACC.

She had already bought half the campus store merchandise, told all her friends where she was going, and had even taken a short trip to hang with her future roommate.

Do NOT let this happen to you.

Now, I know you're burnt out and everything, but here's what you can do to finish strong:

Realize that senior year does count….both the classes you take AND the grades you get in them. So, like I said above, finish strong. You're almost there, don't let up know.
Evaluate your schedule. Don't get so busy with work or friends or your boyfriend/girlfriend that you're using up all the time you used to spend studying. Stay focused on your academics.
All right, this is going to sound lame, but challenge yourself. Yeah, yeah, I know. You've been hearing this forever. Here’s what I mean: Look for ways to push yourself. Form a study group if you have to, or try to find something for extra credit that's interesting (key word: interesting).
Get your dang internship already! I've beat this one to death, but it's vitally important which is why I keep sounding like a broken record on this. Remember, it will help you both in determining whether you're even going to school for the right thing or not, AND it will get your foot in the door for the future.
Lastly: you're so 'done' with high school? Cool. Go take a class at a community college. Make sure it's academic, but this will give you a chance to get your feet wet and see what college is like, as well as being able to walk the halls with adults. With a little foresight, you could also snag a few college credit hours while you're at it and save your folks some money freshman year.

I don’t know if these will help you or not. Like I said, probably the MOST important thing is to realize that 'almost done' and 'done' are NOT the same thing. In fact, that’s a pretty good quote. You should probably write that one down.

Hang in there. You’ll be in college soon enough!

'Uncle' Brent

PS - NOW GET YOUR HOMEWORK DONE! Oh, and go check out my revamped website while you're at it. http://www.nwacollegeplanners.com/

GOOD NEWS! (For A Change)

noreply@blogger.com (Brent Reader) — Sat, 09 Feb 2008 18:15:00 +0000

Here's a story by Insider Higher Ed about the House bill on Financial Aid. It's a good bill that calls for some important changes to the financial aid process.

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House, Focusing on Cost, Approves Higher Education Act

The House of Representatives on Thursday overwhelmingly approved legislation to renew the Higher Education Act that would toughen regulation of the student loan industry and simplify the process of applying for federal financial aid, among many other things. But while the legislation touches on an enormously broad range of issues and programs, the debate and discussion surrounding the measure focused heavily on the rising prices of college and the increasing difficulty students and families have paying for a higher education.

The House bill (H.R. 4137), known as the College Opportunity and Affordability Act, represents Congress’s most aggressive efforts yet to pressure colleges to contain both their own internal costs and what they charge to students. In drafting the bill, Democratic leaders cast their lot with Republicans who have been pressing the issue for a decade, greatly increasing what colleges would have to report on their finances and agreeing to create lists designed to embarrass colleges that increase their tuitions significantly.

Under the legislation, the 5 percent of institutions in each sector (public, private, for-profit, two-year, four-year, etc.) that raise their tuitions by the highest percentage over a three-year period would have to create “quality efficiency task forces” to analyze why the colleges are raising prices more than their peers. Institutions on the list would also be required to report to the education secretary on the factors contributing to the price increases.

On top of those provisions, Thursday’s debate over the Higher Education Act legislation was dominated by the bipartisan embrace of several amendments — opposed by college leaders — designed to intensify the scrutiny of college spending and prices. Lawmakers, for example, approved amendments Thursday that would require colleges to (1) give prospective students information about what their tuitions are likely to be over multiple years and (2) report to the Education Department annually about how much of their endowments they spend on “reducing the costs of instruction offered by such institution, including the specific amounts expended for grants and other aid to reduce the amounts charged for tuition, fees, textbooks, meals, room and board.” An amendment that would have gone further — requiring a minimum payout from all college endowments — was withdrawn by its author, Rep. Peter Welch (D-Vt.), on Wednesday.

“Last year, by enacting a $20 billion increase in federal student aid – the largest increase since the G.I. Bill of 1944 – this Congress took an historic step to help American families pay for college,” said Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee. “Now we are redoubling our commitment to college students and parents by reining in skyrocketing tuition prices and making our whole system of higher education far more consumer-friendly.”

“Despite the considerable federal investment — or perhaps, in part, because of it — colleges and universities have increased tuition and fees year in and year out,” said Rep. Howard P. (Buck) McKeon of California, senior Republican and Miller’s counterpart on the House education panel. “The increases have come in good economic times and in bad, with steady enrollments and surging enrollments. It seems the only thing consistent about college costs is that they’re going up, and fast. With this bill, we hope to change that.”

The overarching agreement between leaders of the two parties over the centrality of the cost issue reflected the general consensus with which the key piece of legislation, which governs most federal higher education programs, was both drafted in recent weeks and discussed on Thursday. The day’s debate was largely devoid of drama — the final margin of the vote was 354-58 — and the only real moments of contention came at the very start, when Republicans balked that the Democratic-controlled Rules Committee had declared most of the potentially controversial amendments (most of which came from Republicans) to be “out of order” Wednesday night.

Only 4 of the 27 amendments cleared for consideration on the House floor Thursday came from Republicans, with the Rules Committee blocking votes on such core GOP issues as restricting aid for undocumented/illegal immigrants and endorsing David Horowitz’s Academic Bill of Rights, as well as McKeon’s plea to have the Education Department explore the damage being done to the student loan industry by last fall’s Congressionally mandated subsidy cuts and the current creditcrunch.

Those moves prompted Republicans to bemoan what they characterized as a disruption of the bipartisan approach the committee’s leaders had used in crafting the underlying bill. “Why are Republicans being shut out of a bipartisan bill” by a “heavy-handed majority?” McKeon asked on the House floor, as he complained about the Democratic majority’s rejection of one of his amendments and those from several of his colleagues. McKeon said that the strict limits on amendments “taints the bipartisanship of the underlying bill.”

Once that unpleasantness was done, very little else disturbed the general geniality and accord of Thursday’s discussion. Even the few contested votes on amendments generated little in the way of discord from lawmakers across the aisle that separates the two parties. The only major disagreement came on an amendment that would have allowed borrowers to discharge private student loans after five years in bankruptcy.

Advocates for students supported the provision, which was proposed by Rep. Danny Davis (D-Ill.), because they say expensive and private student loans have become a major source of financial turmoil for borrowers and should be treated like many other forms of consumer loans, which can be discharged in bankruptcy.

But opponents said such a change could serve to drive up the cost of private loans for all borrowers because such loans would become riskier for lenders and therefore made at higher interest rates. “This would help a small number of people, but hurt a larger number,” said Rep. Ric Keller (R-Fla.), who heads the House’s postsecondary education committee. Although the bankruptcy provision appeared to win approval in an early-afternoon voice vote, it failed by a margin of 236 to 179 when lawmakers had to put their votes on the record.

“We are disappointed that the House chose to stand with big banks instead of students who fall victim to predatory private student loans,” said Luke Swarthout, higher education advocate for the U.S. Public Interest Research Group.

Other amendments approved on the House floor Thursday would direct the Education Department to study the pros and cons of allowing federal aid to flow to students who attend college less than half time, and urge the U.S. Education Department and the Internal Revenue to collaborate so that information that citizens submit on their tax returns can be used when they apply for federal financial aid. “I hope that both of the bureaucracies involved will really heed this,” Rep. John Doggett (D-Tex.) said of the latter amendment, which he sponsored.

The Underlying Bill

The Higher Education Act bill, which gives most federal college programs the authority to operate for five years and was last renewed (because of repeated false starts since then) in 1998, touches on an enormously wide range of issues. Among many other things, the legislation would:

Give the Education Department significantly more authority to regulate private student loans, as part of a broad set of provisions — prompted by last year’s investigations into illegal inducements given to colleges by lenders — aimed at cracking down on the behavior of lendersand college officials in making loans to students.

Dictate that colleges craft plans for giving their students legal ways to download movies and music, and that institutions explore technologies to stop illegal peer to peer file sharing. This provision had been strongly opposed by several college groups, especially since those promoting it based their arguments largely on data about campus downloading that have since been shown to be seriously flawed.

Bar the U.S. Education Department from issuing regulations governing higher education accreditation, designed to ensure that colleges are measuring student learning outcomes. Education Secretary Margaret Spellings vehemently opposes the provision (leading the White House to “strongly oppose” the bill) and will try to alter it when House and Senate negotiators meet to craft a compromise version of the Higher Ed Act legislation in coming weeks. The legislation would also create a new federal position, an “ombudsman,” to intervene in disputes related to accreditation.

Extend to three years from two the period the federal government uses to calculate the rate at which student loan borrowers default, but delay implementation of the change until 2012 and raise some of the rates at which penalties against institutions with high rates kick in.

Set a ceiling on the maximum Pell Grant of $9,000, and allow for students to receive Pell Grant funds year-round, instead of just during the traditional academic year.

Require states to maintain their financial support of higher education and allow the Education Department to withhold some funds to states that cut their college appropriations — an idea endorsed by some college officials but strongly opposed by many state legislators.

Make some much-sought changes in the Academic Competitiveness Grant Program, including making the much-maligned grants for low-income students available to part-time students and those seeking certificates as well as degrees, and taking the education secretary out of the business of deciding whether high school programs are of sufficient academic rigor to qualify students for the grants, leaving that decision instead up to state officials.

Mandate that textbook publishers expand the information they provide to faculty members about pricing and changes from past editions, and that colleges put information about required boooks in their course schedules to help students shop for books more cost effectively, among other provisions aimed at easing textbook prices.

Crack down on diploma mills by directing the Education Department to publish lists of accredited institutions and accreditation agencies, among other things.

Make several changes designed to make it easier for students to get information about their financial aid awards and to generally simplify the process by which students — particularly those from low-income families — can qualify for federal financial aid.

Establish a loan fund to help colleges and universities damaged or otherwise impaired by natural disasters such as the 2005 hurricanes in the Gulf Coast.

Toughen standards for teacher education programs.

Leaders in the Senate and the House both said they hoped lawmakers from the two chambers could meet soon to work out differences between their respective versions of the Higher Education Act legislation and get a compromise version to President Bush, who has expressed concerns about both versions but not threatened to veto either one.

The Dirty Little Secrets of Student Loans

noreply@blogger.com (Brent Reader) — Wed, 06 Feb 2008 17:30:00 +0000

If you pay attention to this kind of thing, the airways are flooded with student loan solicitations this time of year from student lenders such as Citibank and Mohela:

“$40,000 in Two Days!”

“Better Rates if Your Parents Co-Sign!”

Before you sign your life away, take a deep breath and consider what you might be getting yourself into. Most parents and college-bound students do not realize that student borrowers are not-so-distant cousins to headline-making borrowers with subprime mortgages.

Many experts, present company included, believe that the student loan market is poised to experience the devastation currently affecting the subprime mortgage market.

Granted, I don’t know too many folks up at night thinking about the commonalities shared by college students and subprime mortgage holders. I am, and let me tell you, the similarities are alarming. For starters, student borrowers and subprime mortgage holders are ill-advised on financial matters (present company excluded, of course). Specifically, the consequences of their borrowing decisions. It is not exactly news that adjustable-rate mortgages (ARMs) resetting to high interest rates are the main culprit behind late payments, defaults, foreclosures and ruined credit.

Here’s how it works: mortgage companies offer low teaser rates to get the homeowners qualified and get them in the door, but with some loan programs, the initial required payments are not even enough to pay the interest on the loans (referred to as "margin payments"), resulting in the homeowner owing more money than they originally borrowed - possibly more than the value of their home.

It gets worse.

Next, when the ARM adjusts upward, homeowners must refinance to continue to afford their payments and to avoid their new, higher monthly interest rates. This worked for years, because it was relatively easy to qualify for new mortgages with home values skyrocketing... but this peachy little scenario screeched to a halt simultaneously with the collapse of the secondary mortgage market, slumping real estate values and a slowing economy.

The result: subprime borrowers were denied credit for refinance loans, they were forced to keep their unmanagable payments, and they were pushed into default or, in many cases, foreclosure, which will haunt their credit history for 12 years.

Right here in Arkansas and across the country, college graduates burdened by student loans face similar problems. Just like the mortgage companies, student lenders offer a low teaser rate which adjusts upward (it’s almost always up, not down, unfortunately!) after the introductory period.

The result: payments get jacked up a few years after the loan was originated. And the new payment almost always catches the borrower by surprise. Just like their subprime borrower counterparts, student loan holders are often having difficulty making payments once the loan adjusts upward, stunting their ability to save money and invest in their own future. Then come the inevitable late payments, non-payments, defaults and ensuing credit problems. It's a slippery slope!

Now here's where it really gets nasty for student loan borrowers: most student loans, unlike other debts, cannot be forgiven in the event of a Bankruptcy, except in the case of extreme hardship (like quadriplegia from a catastrophic car accident). And thanks to the new, stringent bankruptcy laws passed in 2005, federal bankruptcy courts are very reluctant to grant exceptions even for such extreme cases!

In other words: if you borrow it, you owe it for life!

And if any of those defaulted loans happen to be guaranteed by the government, they will tag your name in a federal database called CAIVRS, which prevents you from ever qualifying for home loans through the Federal Housing Administration (FHA), business loans through the Small Business Administration (SBA), or benefits from various federal programs - until you have paid your debt in full.

In most cases borrowers of both student loans and subprime mortgages claim that they were misled about the terms of their loans. They cry that the lenders withheld vital information, or glossed over important information.

To their credit, and in response to these claims, lawmakers are starting to call for increased disclosures and information from the student lending industry.

Don’t hold your breath, however. This could take years. Your best bet to protect yourself is using your own brain – asking the right questions, listening to the answers.

"What is the interest rate?"
"What is the monthly payment?"
"When do I have to begin repayment? (Is the loan deferred?)"
"When can the loan adjust, if at all?"
"How high can the rate adjust over the life of the loan?"
"What happens if I can’t make a payment?"

To be fair, many student lenders offer this information voluntarily, which helps borrowers make better choices. But this is the exception, not the rule.

Another favorable trend is that many colleges and universities have become more proactive and supportive in educating students about all the details surrounding student loans. Many schools have made available a "borrowing consultation" offered by their financial aid advisor. And in some instances, particularly among the elite higher education institutions, the financial aid packages feature little or even no loans, opting instead for "free" money awards through scholarships and grants.

It’s clear that there is no easy solution for this problem. However, it’s imperative to be mindful of the example set by the subprime mortgage meltdown, and avoid the consequences that accompany irresponsible borrowing and lending. In my practice, we are extremely debt-adverse and strongly urge you to do anything possible to minimize, or flat-out eliminate, borrowing for college. Needless to say, working with us is the best way you can battle this monster, if we do say so ourselves!

New Program to Beef Up Arkansas's 529 College Savings Plans

noreply@blogger.com (Brent Reader) — Thu, 31 Jan 2008 20:01:00 +0000

Yesterday, Governor Mike Beebe announced a new college savings’ program, the Aspiring Scholars Matching Grant. This new program makes matching funds available for low to middle-income families who want to invest in their children’s future by investing in Arkansas’s 529 plan.

The Aspiring Scholars Matching Grant, a pilot program created by ACT 597 of 2007, sets aside $250,000 over two years to match funds deposited into the Arkansas GIFT Plan, an investment plan managed by Upromise Investments, Inc. The GIFT Plan offers tax-deferred earnings and tax-free withdrawals for higher education expenses.

To qualify for matching funds, Arkansans enrolled in the GIFT Plan must earn an adjusted gross income (AGI) of $60,000 or less to qualify for a one-to-one match of up to $500 annually (in other words, put in $500, get $500 from the state). Arkansans who earn $30,000 or less AGI can qualify for a two-to-one match of up to $500 annually (put in $250, get $500 from the state).

Also, in order to get matching funds, GIFT Plan account holders must be Arkansas residents (either US Citizens or Permanent Resident Aliens) whose account beneficiaries are also legal residents of the state.

Since this is still a pilot program, funds are limited, and will be given based on need. If you want to apply, you have to get your application in before April 30 of this year - that means getting your taxes done early, as you have to submit a copy of your 2007 return (or provide proof you did not have to file). According to their website, you should know whether you have been accepted by the end of June.

To get all the details or to open a 529 savings account, go to http://thegiftplan.uii.upromise.com/content/intro/matchinggrant.html

If you are a young family, this can be a great opportunity to sock away some cash for your kids' education, especially while your income may fall below the qualification limits. Where else can you be guaranteed an immediate 200-300% return on an investment of $250-500?

If you are thinking this may seem too good to be true (or to last), well... you may be right.

Just remember that while 529 plans can be a beneficial way to save for future college expenses, there are also a host of limitations and restrictions, which you may or may not want to deal with down the road. You can read more about 529 plans in my book, How to Give Your Child a Four-Year College Education... Without Going Broke.

Oh, and if you make too much money to take advantage of this new matching grant program, but you still want to save for college, don't worry! There are great investment options available that provide tax-free earnings plus the flexibility to spend the money where, when, and how you want - all without penalizing you in the financial aid formulas when your children are in college.

To learn more about the smarter ways to pay for college, be sure to come out to one of my upcoming workshops in February: www.nwacollegeplanners.com/worksched.htm

Which Type Of Person Are You?

noreply@blogger.com (Brent Reader) — Tue, 29 Jan 2008 15:41:00 +0000

Usually, I try to keep my posts polite and very informative, but today I am going to gripe a bit. You'll have to excuse me, but I think I'm right in doing so. On second thought, don't excuse me. I am right in doing so!

I once read a very wise man's words, "Dig the well before you thirst." (Bonus points if you know who said it.)

You see, there are really two types of people in the world: those who are proactive, and those who are reactive.

Let me explain where I'm going with this.

People come to me all the time for answers to one, pressing issue: how to pay for their share of college costs without breaking the bank. Understandably, they are very concerned - they are dealing with a price-tag between $50,000 and $180,000 over four years per child, much of which they will be expected to pay themselves.

After I look over their financial information, I give them a decent estimate of their expected family contribution (what the government will expect them to pay out of pocket each year). Most of the families that come in to see me have an EFC anywhere between $12,000 and $45,000. (The highest I have ever seen is $106,000. That's like saying the guy could not only afford to send his daughter to college, but a few of her friends, too!)

No matter what their EFC is, there is not a man or woman who does not ask, "how can I lower what I'm expected to pay?"

The answer to their question is always a bit complex, because every person's situation is different. There are, after all, 78 different factors used to calculate one's EFC. In order to help someone minimize their EFC as much as humanly possible, I have to gather every bit of financial information about that family.

It's difficult to make specific recommendations without gathering a lot of information first - it would be like a doctor giving the diagnosis before looking at the symptoms! Financial malpractice, so to speak.

Plus, I have to know where their kid is looking at going to school, because we can do everything right to lower the EFC, but if their child applies to schools that just don't have money to give, then it was all for not. So we may recommend schools their child will like, where they will fall into the top 10% of the incoming class, and that are historically the most generous with their financial aid.

Putting together the financial plan requires a minimum 4-5 hours of my time, and working with the student to make sure they're applying to the right schools takes another 4-5 hours. My time is valuable to me. So if I am going to provide this service, I am going to charge for my time. That's fair, right?

To some people it seems the prospect of saving tens of thousands of dollars tomorrow is not worth a very modest fee-for-service today. So they leave my office and decide it "costs too much" to save themselves a ton of money!

Well, fair enough.

Some people are really into DIY. They like to go online to diagnose their own illnesses or represent themselves in a court of law.

I have great respect for self-reliance, but in my experience most of the folks who say it "costs too much" never take the 90+ hours to learn the rules of financial aid and do the research necessary to really emulate what we do in our office. Instead, they stick their head in the sand and pray for one, big scholarship to pay for everything (which seems to be going the way of Sasquatch and the Loch Ness Monster).

And chances are I will see a lot of these folks again within the year - after they did something wrong (or didn't do anything) that cost them thousands of dollars in financial aid.

And when they come crying for me to fix the situation, it really breaks my heart, but not for the parents. At that point I have no sympathy for the financial consequences they will reap as a result of their purposeful action (or inaction). My heart breaks for their child, who had big dreams and aspirations for Princeton, who will now be told they have to stay home and work their way through junior college, because there's no way Mom and Dad can come up with the $27,000 per year the government says they can pay.

All this to say there are two kinds of people when it comes to planning for the cost of higher education: those who are reactive and those who are proactive.

Reactive people limit themselves by always waiting to make a decision or a plan of action until they are forced to do so. They box themselves in and wait until the very last minute before making a desperate attempt to solve a problem.

When it comes to planning for college, the longer you wait, the fewer options you have to lower your EFC, the weaker your position will be when trying to negotiate your aid package, and the more likely you are to be forced into taking high-rate, high-fee, long-term loans to pay for your share of college costs.

Reactive people will spend their child's senior year in a state of sleepless anxiety, when they should be enjoying the time they have with them.

Proactive people take action with the future in mind. They dig their well before they thirst! By planning and making decisions in advance, they have more options, so they do not act out of desperation but provision.

When it comes to planning for college, these people take it upon themselves to learn and understand the rules of financial aid and reposition their income and assets accordingly. They have researched the schools their child wants to attend to know which ones will likely give the most aid, and they put themselves in a great position to negotiate a better aid package because they know exactly how much their kid should get.

Proactive people are able to rest easy during this process, because they have either taken control of their own situation, or they had the foresight to hire a knowledgeable expert to handle it for them.

So which type of person are you? Which do you want to be?

Most importantly: what are you going to do about it?

What The Nation's 6 Largest Student Loan Providers Do Not Want You to Know

noreply@blogger.com (Brent Reader) — Fri, 25 Jan 2008 14:38:00 +0000

I've talked about this before, but it bears repeating on this blog:

The Unholy Alliance Between Lenders And Universities

Last year a banking scandal erupted that rocked the University of Texas and other large institutions. This scandal involved the use of illegal perks or payments made to large university student loan counselors. In exchange, those university officials would “steer” students and families into higher-rate loan programs provided by the inducing banks, that were often not in the families' best interest. Apparently, this practice has been going on for years.

In June of 2007, the Attorney General of New York, Andrew Cuomo, outlined and implemented a Code of Conduct plan for the 6 largest student loan lenders. Cuomo’s plan includes the following 7 provisions:

1. Ban on Financial Ties. Lenders are prohibited from giving anything of value to any college in exchange for any advantage sought by the lender. This severs any inappropriate financial arrangements between lenders and schools and specifically prohibits “revenue sharing” arrangements.

2. Ban on Payments for Preferred Lender Status. Lenders may not pay or give colleges any financial benefits whatsoever to get on a college’s preferred lender list.

3. Gift and Trip Prohibition. Lenders are prohibited from giving college employees anything of more than nominal value. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders.

4. Advisory Board Rules. Lenders are prohibited from paying college employees anything of value for serving on the advisory boards of the lenders.

5. Call-Center and Staffing Prohibition. Lenders must ensure that employees of lenders never identify themselves to students as employees of colleges. No employee of a lender may ever work in or providing staffing assistance to a college financial aid office.

6. Disclosure of Range of Rates and Defaults. Lenders must disclose to any requesting school the range of rates they charge to students at the school, the number of borrowers at each rate at the school, and the lender’s historic default rate at the school. This is meant to ensure that schools will have the information they need to select preferred lenders who are actually best for students and their families.

7. Loan Resale Disclosure. Lenders shall fully and prominently disclose to students and their parents any agreements they have to sell loans to any other lender.

Look at these provisions carefully. Essentially these rules are against kickbacks of any kind to college financial aid offices. Would you want to become a customer of a bank (or college) that is being reprimanded for these actions?

And even with new "rules" of conduct, doesn't it still make sense to search for an alternative to the exorbitant costs of private, commercial college loans?

How much you end up paying for your child's education is almost entirely up to you. Are you the kind of person who is reactive or proactive when it comes to planning for college?

Brent Reader is a leading expert in paying for college and the author of How to Give Your Child a Four-Year College Education... Without Going Broke! You can see him live and in person at one of his upcoming workshops on 7 ways to slash college costs.

Warning: Students, What You Post On Facebook Could Haunt You!

noreply@blogger.com (Brent Reader) — Sun, 20 Jan 2008 22:51:00 +0000

It happened again. In January of 2008, almost 100 students (!!!!) from one high school in Minnesota were suspended or kicked off of sports teams for photos that were posted on online websites like MySpace and Facebook that showed them drinking and partying. So, if you’ve been working hard to get into college—have busted your rear getting good grades, studied late at night for the SAT, polished and perfected your essay, and prepared for campus interviews—you’re not done just yet. Let’s talk about how NOT to let a stupid photo or two ruin your chances of getting in… or worse.

First, let’s talk about the dilemma: currently, it’s reported that up to 85 % of the students at any given school or college post to at least one of the major social websites, whether it’s MySpace, Facebook, Xanga, LiveJournal, or Friendster. And while some students believe that what they post there should be private, or should be to allow them to ‘express themselves’ and it shouldn’t matter to anyone else, the reality is that what you post online is public, and in some cases, permanent. And it does matter.

Think back to how many current celebrities like Vanessa Williams, Cameron Diaz, and untold American Idol contestants have had embarrassing photos resurface once they became famous.
Well, your college may be searching online for you, and there is nothing you can do to stop it.
Charles Samuelson, the Executive Director for the ACLU, was quoted as saying, “Anyone who thinks that something posted on a social website is private is an idiot. A student’s civil liberties are NOT being violated if a school or college uses such information to discipline a student or to make admission decisions.”

The good news is this: most colleges are not surfing the web for your profile. Admissions officers from both Stanford and MIT recently claimed that they were among those schools that did not look up students online. However, many schools do; and many potential employers will as well. According to a 2005 study by ExecuNet, 75% of head-hunters and recruiters use web research as part of their screening process. And more than one employee has been fired for what their employers found online.

Penn State even recently used a Facebook group called “I rushed the field after the OSU game (and lived!)” to charge two students with criminal trespassing. And the police busted an underage drinking party at George Washington University after they found the invitations online.

Further, even if you remove a page or post, it never really goes away. It can be saved on anyone’s computer, or on websites like Google and WayBackMachine which archive pages more or less forever.

So, let’s discuss some ground rules for posting on social websites, so nothing comes back to haunt you later. First, for safety’s sake, never post personal information like your address, your schedule, phone numbers or anything like that. Next, make your profile private so strangers can’t look you up, and be careful about allowing new ‘friends’ that you don’t know personally to access your website. Even if you are cautious, though, remember what I said above about nothing really being private.

Here is a great tip from Nicole Verardi about what you actually do post. She calls it the ‘Grandma Test’, which basically is if you wouldn’t want your grandmother to see it, then you don’t want other adults to see it either. Your grandma may not know how to use a computer, but more and more seniors are taking classes to help them learn; and you do NOT want to be responsible for giving your granny a heart attack, now, do you?

Also, be careful about what your friends post about you on their sites as well. If there is anything damaging, ask them to remove it ASAP. Lastly, be careful about the email address you use to communicate with a college or potential employer. Giving them an address like drunkenmonkey@aol.com or partygirl17@yahoo.com is not going to impress anyone.
So, I’m not trying to ruin your fun. I’m merely suggesting that you review your online websites and blogs for anything questionable or damaging before your submit a college application or resume. I don’t want to see all your hard work go to waste because of a few photos of you getting, well... wasted.

Brent Reader is the area’s leading expert on everything related to college, from selecting a career and major, to getting in to your top school, to being able to afford it. You can get a ton more information, including a free e-book at www.nwacollegeplanners.com.

How "Free" is the FAFSA?

noreply@blogger.com (Brent Reader) — Thu, 17 Jan 2008 00:13:00 +0000

The first word on the Free Application for Federal Student Aid, the form all students must use to apply for federal financial aid programs is “Free”. However, the FAFSA costs many families a lot of money in lost aid.

As I’ve mentioned before, the FAFSA is a 128 question form that is used to determine a family’s eligibility for need-based financial aid and results in a number called the Estimated Family Contribution, or EFC. The U.S. Department of Education claims that the FAFSA takes one hour to complete. (Article spoiler: Ha ha ha!)

How complicated is the form? According to the Department of Education, approximately 80% of the forms submitted for processing are done incorrectly or are incomplete. That’s down from 91% two years ago, mostly due to more people using the online version at http://www.fafsa.ed.gov, which eliminates some of the technical issues found with the paper version and lets you know right away if you make a simple mistake, like spelling your name incorrectly (don't laugh, it happens).

After you submit this form, you get a Student Aid Report and are asked to confirm your answers and make corrections regarding income, assets, taxes paid, etc. Assuming you notice errors or omissions, your corrections are then resubmitted. Usually, each time the process goes from you to the government back to you, expect a four to six week processing time.

You can fill out the FAFSA as early as January 1st of your child's senior year, and they tell you you have until September of that calendar year to submit it to the processing center. HOWEVER, you must check with the schools your child is applying to and find out what their deadline is - usually around the beginning of March. The earliest college deadline is your deadline.

Why?

Federal financial aid is awarded on a first-come, first-served basis. Processing and correcting errors can cost you money because there is less aid available the longer it takes to submit correct aid reports to the government, who then passes the information along to the colleges who distribute federal money in the form of loans and grants.

So if the 128 question FAFSA takes one hour to complete, how does that compare to the more familiar tax forms? Most families file either the 1040A or the 1040EZ for federal tax purposes. Form 1040EZ asks 37 questions; Form 1040A asks 83 questions. If we use “U.S. Department of Education math,” that means that the 1040EZ should take 17 minutes to complete and the 1040A should only take 39 minutes. The Internal Revenue Service, however, suggests that the forms take 8 and 13 hours to complete, respectively.

This begs the question: how many hours will you spend on the FAFSA?

More and more lower and middle-income families are suffering from a very large disconnect between what they see as their ability to pay and what the FAFSA formula determines they should be able to afford, even if the form is done "correctly" and on time. Many families either don’t bother to apply, given the confusion in the process, or do file the FAFSA and are shocked by their EFC. How, for example, is a family earning $75,000 per year supposed to pay $20,000 per year for college?

The answer is bad math. Your “cost of living” as determined by the FAFSA is based off an incremental adjustment from the cost of living stats in 1964. The formula includes "protection allowances" for both income and assets, which are based off multiple factors such as family size, number in college, ages of parents, ages of students, whether both parents work, etc. But do you know anyone today who can feed, clothe, and shelter a family of four for $15,000? I think not.

Many upper income families do not fill out the FAFSA because they just “know” they will not qualify for aid, writing it off as too much of a hassle. However, that's a huge mistake for 2 reasons: 1) almost every family gets an offer for some kind of aid, even if it’s just a subsidized loan package; and 2) more public and private colleges are requiring the FAFSA in order to get any type of aid, including academic and athletic scholarships.

Not filling out the form will guarantee you get neither need-based nor merit-based aid!

The fact that many families of all income levels don’t apply because of the confusion, misinformation, and hassle of the forms and processes is unfortunate – costing families thousands of dollars, sometimes tens of thousands of dollars, per year in college costs and/or missed opportunities.

In a recent draft of a report by the U.S. Secretary of Education’s Commission on the Future of Higher Education, the commission notes that “The existing convoluted, complex and counterproductive financial aid system for students should be restructured and the current federal aid form [the Free Application for Federal Student Aid, or FAFSA] should be eliminated...” Straight from the horse's mouth!

I couldn’t agree more, but I'm not counting on a massive overhaul anytime soon, and neither should you. (After all, we are talking about the government here!)

The moral of this story: while you wait for systemic change, it is imperative that you start the financial aid process as early as possible, and remember to set aside more than an hour to fill out the (somewhat free) FAFSA.

Our clients enjoy the hassle-free convenience of having these forms filled out for them, early and accurately, so they can spend their time enjoying their child's last few months before college.

Brent Reader is the president of College Planning Specialists in Bentonville, Arkansas. A leading expert on paying for college, he is a published author and speaker on “paying for college without going broke”. For a list of upcoming FREE workshops in the Northwest Arkansas area, go to http://www.nwacollegeplanners.com/.

Financial Aid Forms: Don't Make This Mistake

noreply@blogger.com (Brent Reader) — Tue, 15 Jan 2008 01:08:00 +0000

Each month when we conduct our free workshops, I hear this question in some form or another: "We were told we make too much money to qualify for financial aid, so should we even bother applying?"

Here's the answer, for once and for all:

YES!!!

Got it?

Many families assume they make too much money to qualify for financial aid, but there are many factors that determine eligibility - not just income. EVERY family with a high school senior bound for college should complete the FAFSA (Free Application for Federal Student Aid) form in January 2008. Go to http://www.fafsa.ed.gov/. Regardless of family income and assets, there are federal entitlement programs for almost every student.

Additionally, more colleges are requiring the FAFSA form to be submited in order for the student to qualify for merit awards and scholarships. These can be offered as a result of academic, athletic, artistic or even leadership excellence.

Of course, you need to be careful filling out this bad boy, since the opportunity for mistakes and pitfalls are numerous. Overstating your assets and including assets that do not need to be included (such as retirement plans) are some of the more common gaffes that could severely limit or eliminate the aid you would otherwise receive. Be careful, and only give them what they ask for!

Many private colleges require you to submit an additional form, the CSS/PROFILE, and many private schools require their own institutional aid forms. Go to https://profileonline.collegeboard.com/, but only if you are applying to a school that requires it.

If the FAFSA is a pain in the neck, these forms can be downright evil! Be even more careful when filling out these forms, paying particular attention to the sections to be completed by the student. Once you submit the PROFILE, you are given what is called a FAFSA key. If the two forms are even slightly inconsistent, your financial aid application could be delayed or flat out rejected. Ouch!

Final word: The best way to learn about how you can qualify for financial aid is to attend one of our upcoming free workshops. Check out http://www.nwacollegeplanners.com/ for our January schedule.

Is a College Degree from Harvard Cheaper than Tuition from an Arkansas Public University?

noreply@blogger.com (Brent Reader) — Sat, 12 Jan 2008 20:31:00 +0000

I have been saying this to disbelieving parents of college-bound teens for a looooong time: your out-of-pocket costs at an elite, private university can actually be cheaper than tuition, room and board at an in-state public universtity, even if you have a 529 pre-paid tuition plan or savings account.

Last month, Harvard announced a radical move to make college tuition and other costs significantly cheaper, even for students from upper and middle-class families. (Harvard had its own financial reasons for doing so, but that's not the point of this story. You can find out more information, including a schedule of free college planning workshops - "How to Pay for College Without Going Broke" on our website, www.nwacollegeplanners.com.) Check out the following press release:

Harvard announces sweeping middle-income initiative

Cambridge, Mass. – Harvard President Drew Faust and Dean of the Faculty of Arts and Sciences Michael D. Smith today (Dec. 10) announced a sweeping overhaul of financial aid policies designed to make Harvard College more affordable for families across the income spectrum. The new initiative focuses on ensuring greater affordability for middle- and upper-middle-income families through major enhancements to grant aid, the elimination of student loans, and the removal of home equity from financial aid calculations.

This initiative builds on Harvard’s recent pathbreaking policies to ensure that families with incomes below $60,000 are not asked to contribute to the cost of sending their children to Harvard.

The new policy has three major components:

• The “Zero to 10 Percent Standard”: Harvard’s new financial aid policy dramatically reduces the amount families with incomes below $180,000 will be expected to pay. Families with incomes above $120,000 and below $180,000 and with assets typical for these income levels will be asked to pay 10 percent of their incomes. For those with incomes below $120,000, the family contribution percentage will decline steadily from 10 percent, reaching zero for those with incomes at $60,000 and below. For example, a typical family making $120,000 will be asked to pay approximately $12,000 for a child to attend Harvard College, compared with more than $19,000 under existing student aid policies. For a typical family with $180,000 of income, the payment would be approximately $18,000, compared with more than $30,000 today. The new standard reduces the cost to families by one-third to one-half, making the price of a Harvard education for students on financial aid comparable to the cost of in-state tuition and fees at the nation’s leading public universities. The new initiative also establishes a standard that students and their families can easily understand.

• No Loans: In calculating the financial aid packages offered to undergraduates, Harvard will not expect students to take out loans. Loan funds will be replaced by increased grants from the University. Of course, students will be permitted to cover their reduced cost of attendance through loans if they wish.

• Eliminate Home Equity from Consideration: Under the new policy, Harvard will no longer consider home equity in determining a family’s ability to pay for college. This will reduce the price by an average of $4,000 per year for affected families as compared with current practice.

“We want all students who might dream of a Harvard education to know that it is a realistic and affordable option,” said Faust. “Education is fundamental to the future of individuals and the nation, and we are determined to do our part to restore its place as an engine of opportunity, rather than a source of financial stress. With no loans, no consideration of home equity, and a dramatic increase in grant aid, we are not tinkering at the margins, we are rebuilding the engine.

“This is a huge investment for Harvard,” Faust continued, “but there is no more important commitment we could make. Excellence and opportunity must go hand in hand.”The new initiative amplifies Harvard’s long-standing commitment to need-based financial aid — Harvard College awards neither merit aid nor athletic scholarships. Under the new initiative, the College will continue to consider individual circumstances in assessing a family’s financial need. Families with unusually high medical or sibling educational expenses, for example, may be expected to contribute less than the expected percentage income, while those with substantial wealth that does not show up as income may find that they are expected to contribute a higher percentage.

Factors such as family size, health care costs, sibling educational expenses, and other nondiscretionary expenses that place a drain on family finances are considered carefully in assessing a family’s need, and there is no income cut-off for need-based scholarship eligibility. Currently there are more than 100 families with incomes greater than $200,000 who, because of extenuating circumstances, receive need-based financial aid.

“I am very pleased that Harvard is in a position to make these dramatic changes, and I applaud President Faust and Dean Smith for their careful thought and decisive action in this area of central importance to the University and to higher education,” said James R. Houghton, senior fellow of the Harvard Corporation. “Any investment of this magnitude requires trade-offs, even at a university with substantial endowment resources. But investments in the quality of our students — like investments in the excellence of our faculty and research enterprise — occupy a special place.”

“Harvard College has had a very generous financial aid program for decades, and we have made significant enhancements in recent years, especially for families in the lower-income ranges,” said Smith, who as dean of the Faculty of Arts and Sciences oversees Harvard College. “We are concerned, however, that families in the middle are feeling increasingly squeezed as they work more hours, pay more for housing and health care, and face greater uncertainty in retirement.

“We want to ease these burdens,” Smith continued. “We want to make Harvard affordable for talented students from all financial backgrounds, and once they are here, we want to make sure they are able to take full advantage of the opportunities we provide to build their skills and knowledge and to engage their deepest interests. This experience is not possible if families are consumed with financial worry and students are consumed with debt.”

The new initiative is the latest chapter in Harvard’s systematic effort to increase affordability and widen access for qualified students from across the economic spectrum. In the winter of 2004, under the leadership of President Lawrence H. Summers, Harvard transformed the financial aid landscape with its announcement that families with annual incomes below $40,000 would not be expected to pay for their sons or daughters to go to Harvard. The zero-contribution threshold was raised to $60,000 in 2006, with further reductions in parental contributions for families with incomes up to $80,000. Over the past three years, the number of students in these income ranges has increased by 33 percent, representing a quarter of the entering Class of 2011.

“For the past several years, we in the Office of Admissions and Financial Aid have been talking with families about their needs and working with Clayton Spencer, vice president for policy, and researchers at the University to understand internal realities and external trends,” said William R. Fitzsimmons, Harvard College’s dean of Admissions and Financial Aid. “All of these inquiries have led us to the same conclusion — despite our best efforts to help families deal with rising college costs, our methods for measuring financial need are not as sensitive as they should be to the real circumstances faced by American families. Many parents won’t even allow their sons and daughters to apply to private colleges, while others allow their children to attend but experience real pain in paying the share we ask of them. I am deeply grateful to Dean Smith, President Faust, and the Harvard Corporation for their willingness to take such powerful action to remedy this situation.”

In a related move, Harvard in 2006 announced the elimination of its early action program — a form of nonbinding early admissions — and moved to a single admissions deadline of Jan. 1, beginning in the 2007-08 academic year. In explaining the decision, then-interim President Derek C. Bok stated that the change was designed to make the admissions process simpler and fairer. In his words, “early admissions programs tend to advantage the advantaged,” as students from more sophisticated backgrounds often use the system to increase their chances of admission, while first-generation college students and those from high schools with fewer guidance counselors and other resources may miss out.

Harvard is using the time and capacity freed up by the move to a single admissions cycle to intensify its outreach and recruiting efforts. The admissions staff is now able to travel more widely to make presentations in key cities and other areas to educate students, families, and college counselors about Harvard and the college admissions process in general and is also working with secondary schools in a renewed effort to make applying to college less complicated and less stressful than it is today.

Currently, two-thirds of Harvard College students receive some form of financial aid, and half receive need-based scholarship aid from Harvard, totaling more than $98 million. Major enhancements to financial aid began under the leadership of Harvard President Neil L. Rudenstine. In the past decade, Harvard’s grant budget has increased 143 percent while inflation increased by only 28 percent. With the new initiative fully in place this coming year, more than 90 percent of American families will be eligible to benefit from Harvard’s exceptionally generous financial aid.

Check out our schedule of free workshops at www.nwacollegeplanners.com/worksched.htm.

Show Me the Money! (Part II)

noreply@blogger.com (Brent Reader) — Wed, 09 Jan 2008 16:45:00 +0000

In my last post, I ran through six tips on finding college money. Now, let’s look at the rest of the tips:

7. Make sure you get your application in on time. Missing a deadline just means you wasted your time, since most often, you will automatically be disqualified.

8. Don’t assume you don’t qualify just because you don’t have a perfect GPA or perfect SAT scores. During the research process, you can learn what they are looking for and many sponsors are looking for something other than grades, like community service or a religious affiliation.

9. Read the directions. Don’t leave sections blank. I know this sounds obvious, but we see a lot of students make simple mistakes because they didn’t take the time to read everything first.

10. Write a good essay about something you’re enthusiastic about. Put some time into it, then let it sit a couple of days before you come back and proofread it. Make sure it goes in without any blatant spelling or grammatical errors.

11. If required, get letters of recommendation from people who will do a good job for you, not just whoever is handy and can get it done quickly.

12. Start NOW. As in RIGHT NOW. Don’t wait until you’re a senior or already in college.

Lastly, don’t forget to apply for financial aid, even if you think that you don’t qualify or your family makes too much money. This is where over $125 billion each year is available, versus less than three billion for private scholarship money. Many parents miss this altogether.

With these tips in hand, I can’t guarantee you that you’ll get anything. However, I can assure you that you will be taking steps that will ‘stack the deck’ in your favor and dramatically improve your odds. Good luck and happy hunting!

Brent Reader is president of College Planning Specialists in Bentonville. He offers free, live workshops on topics such as “5 Myths About Qualifying for Financial Aid” and “3 Critical Questions You Must Ask The Financial Aid Office Before You Apply.” For more information visit http://www.nwacollegeplanners.com/.

Show Me the Money! (College Scholarships and Grants)

noreply@blogger.com (Brent Reader) — Sat, 05 Jan 2008 15:36:00 +0000

Welcome to the blog for College Planning Specialists in Bentonville, Arkansas. Today's post reveals the exact steps you should take if you are looking for money (private scholarships and grants) for school.

First, realize you have long odds to beat: a scant 6.9%, or 14.5-to-1 of the undergraduate students that apply for scholarships to college each year actually receive anything at all. The most competitive scholarships receive 400 applications for every one scholarship they give out. A well-known example: each year more than 100,000 students apply for the Coca-Cola scholarship, but only 250 total awards are given. 50 for $20,000 and 200 for $4,000.

But this is not the norm. On average, each recipient is awarded $2,051 in total scholarships over all four years; or roughly enough to pay for books at your typical college for ONE of those years. In fact, private college scholarship money represents less than 2% of the total money that’s available for financial aid. (That’s why we advise our clients to focus on the other 98%!)

So without further ado, here are the tips:

1. Start with a FREE, reputable online scholarship search, like http://www.fastweb.org/ or http://www.srnexpress.com/. Buy a scholarship book that is less than one year old. Library and colleges are good sources. You should NEVER have to pay for this information (see the article on my website about avoiding scholarship scams). There are simply too many good free sources to choose from.

2. Check your and your parents’ employers. Many have scholarships or tuition-assistance programs that nobody knows about because they’ve never asked, so not many other students are competing for them. Each time I teach a class on this subject, we get a call or two the next day from parents thanking me for this, and telling me they found some obscure scholarship through their work worth thousands of dollars.

3. If you are at least 1/16th Native American, check with the Bureau of Indian Affairs. They often have substantial scholarships available depending on what tribe you are from.

4. Since you don’t have unlimited time, increase your odds and apply wisely. Look for criteria that matches you and your interests as closely as possible; weed out all others. Do NOT apply for scholarships that ‘everyone’ can apply for, or that aren’t worth that much money to begin with.

5. Try to find things that are more unique to you. For example: Loyola-Chicago has a scholarship for people who meet two criteria: They’re Catholic and they have the last name Zolp!

6. Do NOT waste time applying for scholarships that you do not qualify for. For example: don’t apply for a scholarship that has a 3.75 GPA requirement if you have a 3.6. Your grades may be off by only a fraction, but close does not count in scholarships! In my next dispatch, I’ll cover six more tips that can show YOU the college money, even if you’re not the world’s greatest student!

Brent Reader is the president of College Planning Specialists in Bentonville. He periodically offers free, live workshops on topics such as “5 Myths About Qualifying for Financial Aid” and “3 Critical Questions You Must Ask The Financial Aid Office Before You Apply.” For more information and for a free copy of our E-book, visit www.nwacollegeplanners.com.