In August, Wells Fargo started a pilot in five states, informing customers that the bank would start in November to charge $3 per month for their debit card. Wells Fargo at the time said it didn't expect the fee to be popular, but the backlash was evidently more substantial: It said in a statement the end of the program is "a response to customer feedback."...Even Bank of America Corp. (BAC), which is among the few banks to have already started charging a monthly fee, is now considering adding options that will reduce the number of customers affected by the fee, according to a person familiar with the matter."

Bank of America later rescinded their plans also (from Business Week):

"Bank of America Corp. is scrapping its plan to charge a $5 monthly fee for making debit card purchases after an uproar and threatened exodus by customers."

"Know Before You Owe" worksheet available on government's Consumer Finance site.  Michelle Singletary at Washington Post noted the importance of showing students how much they would be expected to owe at graduation:  

"Most important, a box provides not only the total loan amount borrowed but also the total estimated monthly payment for federal and any private loans. This one section should serve as shock therapy for students who don’t end up getting lots of grants or scholarships."  

If it is so important, why isn't there something on the form to draw student's attention to these figures instead of being buried at the bottom of the page?  Here's what else is missing from this form:  what is average salary of students graduating from the school with a given major and what percentage of students have full-time jobs after graduation?  Without those nuggets of information, it is hard to provide context for whether the debt load a student has is manageable.  Schools will say this information is hard to collect...but consumers should demand it given the extent of their investment.  The form as currently constituted only continues to perpetuate the mirage that all college degrees are equal in value, which cannot be further from the truth.  

The Economist joins the chorus of voices (469,000 results on Google) asking "is student loan debt a bubble?"  

"Two things, however, are clear. The size of student debt is vast (see chart), and lots of borrowers are struggling. More than 10m students took out loans for the latest academic year, according to a report issued on October 26th by the College Board, a consortium of academic institutions. Almost a third of students graduating from college, and 69% of the ones dropping out, hold debt tied to their education."

I had thought the figure was 2/3 of graduates had borrowed but the real damaging figures are for those who drop out as they have not received the economic benefit of their education while being saddled with the debt.  

As I have been reading the Steve Jobs biography from Walter Isaacson that recently hit the bookshelves (highly recommended!), I couldn't help but think about what would happen if one were to unleash Job's design principles (simplicity, creating intuitive interfaces, and my favorite " know who are you designing for") to the world of financial service products.  For those shaking their heads and saying "but financial services is so different than technology" it may be hard for us to recall that pre-Apple, there weren't many technology products that consumers felt a strong personal attachment to.  While I don't know what those redesigned product descriptions would look like (not feeling particularly creative now) for student loans, I can assure you that if I was designing with the student or their parents in mind, I would not include footnotes like this in my product description (most lenders provide these tiny footnotes):

"2 The following repayment example is for informational purposes only and is an example of available loan terms of the Smart Option Student with the Fixed Repayment Option made to a freshman borrower at a degree-granting institution: A $10,000.00 loan with two disbursements, and no grace, a disbursement fee of 0% and a 7.21% APR. APR is variable and may increase after consummation. Repayment consists of 51 fixed $25/month payments during the in school and separation period, followed by 119 payments of $140.28 per month and one payment of $114.17, for a total amount paid of $18,082.49."

Financial literacy can make you wealthier....recent NBER paper shows those with strong financial literacy more likely to invest in stock markets (not exactly a winning strategy over the past decade) and also to develop a retirement savings plan:

"Our findings provide evidence of a strong positive association between financial literacy and net worth, even after controlling for many determinants of wealth. Moreover, we discuss two channels through which financial literacy might facilitate wealth accumulation. First, financial knowledge increases the likelihood of investing in the stock market, allowing individuals to benefit from the equity premium. Second, financial literacy is positively related to retirement planning, and the development of a savings plan has been shown to boost wealth. Overall, financial literacy, both directly and indirectly, is found to have a strong link to household wealth."

The amount of student debt (over $1 trillion by some estimates) likely to dampen consumer spending for recent graduates and not so recent graduates too as many choose repayment terms over 20 years (from Chicago Tribune):

"Now, a generation of students and graduates is walking off campus with a collective $1 trillion in student loan debt and troubling career prospects. The daunting combination is forcing them to rethink their futures, postponing weddings, home purchases and vacations to make hefty monthly payments on loans that will follow them into middle age."

This article reminds me here financial literacy programs fall short...it can't be taught like other academic courses, it has to be all about providing a decision-making framework rather than a focus on facts.  So, you can teach a module about saving, then have students collect information from 3-4 financial institutions and make a decision about which product to select.  Students have to be allowed to fail in the classroom before making decisions like this:

"I knew when I applied that it was a really expensive college,”...who expects to have $100,000 in debt when she graduates and expects to earn $16,000 to $34,000 a year as a teacher. “I’m hoping the caliber of the education will allow me to get a job that will make it easier to pay off.”

I hope that she learns about the Public Service Loan Forgiveness program...hope is not a viable strategy when it comes to student loan debt.  While I am on the topic, would a private lender really underwrite almost $70,000 in private loans (government max is $31,000) and would she be able to find a cosigner to support her excessive debt levels?  

OK, do we really need more evidence of how our mental faculties decline as we age...yes, our financial decision-making worsens over time too (from MarketWatch):  

"The scores on a test measuring knowledge of investments, insurance, credit and money basics fell about 2% each year starting after age 60, falling from about 59% correct — hardly a passing grade — for those in their 60s to a dismal 30% for those 80 and older, according to Michael Finke, an associate professor at Texas Tech University and a co-author of the study."

Colleges are now required to post net price calculators as of yesterday (October 29th).  Should help students make sense of financial aid they would be eligible for BEFORE they apply:

"Beginning on October 29, U.S. colleges are required to post net price calculators on their web sites. These calculators are supposed to go beyond sticker prices to include estimates of total cost of attendance, including the extras, as well as estimates of typical aid paid to students at the school."

Next week, I will take a closer look at the College Board report on student aid...have a nice weekend.  

Meanwhile, Sallie Mae continues to grow their private loan originations which they reported as of the end of the 3rd quarter were up 21% year-to-date and 29% in the 3Q (a seasonally strong quarter) as compared to last year.   Other highlights from the call:

• Growth is being driven by market share gains vs. overall market growth:  "appears more like market share gains than market size gains."

• Borrowers have strong credit profiles:  "FICO scores in excess of -- an average in excess of 750 (752) and with more than 90% cosigners (94%)."

• Recall that SLM reintroduced their deferred repayment Smart Option loan earlier this year which has clearly driven their loan growth this year: "...with 36% of our borrowers choosing the deferred option, 35% choosing fixed pay and 29% choosing interest-only option in the quarter."  They were clearly at a competitive disadvantage last year being the only major lender without a deferred option.  

• Indicated no change in their pricing strategy:  "I think the prices that are out there among the competitors are pretty even."  

• Highlights the strength of their school channel distribution (recall the importance of school lender lists in driving volume to the lenders on that list; apparently that remains the case even in light of regulations which had seemingly dampened enthusiasm for these lists):  "...we continue to have very good relationships with the schools that I think people who get in this business realize how important those relationships are, certainly, have been and continue to be. And that's a huge advantage for us. We have the biggest sales force out there, feet on the ground. And I think that's driving a lot of the volume."

• Expanding product offerings to credit cards for parent cosigners and checking accounts for students:  "One of the products where we've had really good success on is offering a credit card to the parents, the co-signers of the private student loans we're originating...launched a student checking account with a debit card that has a very attractive program structure with minimal, really no fees and is really designed to complement the refund process that goes on, on college campuses and provide us with a source of deposits to help finance our growing Private Student Loan business."  
  • So, following the fund flows:  Student loan goes to college to cover student costs...student receives refund from college deposited into Sallie Mae checking account...which Sallie Mae then uses to finance future loans to students.  That's a good business model!

Continuing on the subject of student loan debt and delinquencies, this Fed Consumer Credit Panel shows delinquencies of 90+days at persistently high levels with the second quarter levels at 11.19%.  Four of the past five quarters have been over 11.0%.  This compares with mortgage delinquencies which peaked at 8.9% in the first quarter of 2010 and has declined to 6.9% as of the second quarter of 2011.  See charts on the Federal Reserve Bank of New York Credit Conditions page at the Household Debt and Credit tab.

Wall Street Journal editors (about 2/3 of the way down the page) discuss possibilities of "student loan bailout":

"The amount of student loans taken out exceeded $100 billion for the first time last year. And total unpaid student loan debt is expected to exceed $1 trillion by the end of 2011. Americans now owe more on student loans than on credit cards, and the default rate is rising. So could taxpayers soon be on the hook?"

Meanwhile Ron Paul (polling at 8% in latest AP poll) on Meet the Press recommended that the government stop lending to students:

"Paul said Sunday on NBC's "Meet the Press" that he'd kill the loan program eventually if he were president...Just think of all this willingness to want to help every student get a college education," said Paul, who graduated from Gettysburg College in Pennsylvania before earning a medical degree at the Duke University School of Medicine. "I went to school when we had none of those. I could work my way through college and medical school because it wasn't so expensive."

Sounds like a little wishful thinking here...consumers significantly underreport credit card debt, according to recent Federal Reserve research paper (New York Times blog):

"Households underreport the magnitude of their credit card debts by at least one-third, according to a new study from the Federal Reserve Bank of New York. The difference for the average household is more than $2,000."

We aren't the only country with a savings problem.  Recent debate in New Zealand over their KiwiSaver retirement plan (Kiwisaver is a voluntary work-based savings initiative in which individuals contribute to a retirement plan in which the government and their employer also contributes):

"Stubbs believes that to adequately meet retirement expectations, KiwiSaver contributions need to be gradually notched up from the current 2% and 3% (effective April 2013) to between 9-12% in line with savings rates across the Tasman.  "You have to create a savings habit and we're in favour of a scheme that looks something like that of Australian's,'' said Stubbs."

Interesting stats on retirement plans in the U.S. (from Fortune):  about 2/3 of U.S. workers reliant on 401k plans while 1/3 still have defined benefit plans (pension plan) from their employer.  Those nearing retirement apparently avoid "running the numbers" to determine how their retirement is shaping up:

"Many workers, especially younger ones, have never run a retirement projection, according to Financial Finesse. A survey by the financial education provider found that 57% of employees age 55 to 64 said they had not run a calculation to estimate whether or not they were on track for retirement."

I'm a big fan of exposing young students to entrepreneurs, as this program in Canada is doing:

"More than 240 students in Grades 5 and 6 are being introduced to the concepts of business organization, management, production and marketing as part of Small Business Month.

"Working with the Prodigy Group enables us to encourage entrepreneurial aspirations among our local youth," said Deborah Wakeham, Island manager for Junior Achievement B.C. "These young business people have so much knowledge and experience to share. [They] are able to inspire students to think about business in our community and business in the future."

Buffett launches series of cartoons called Secret Millionaires Club to teach financial literacy lessons (Jay-Z appears in the first cartoon).  Why is Buffett doing this (from CNBC Blog)?:

"It’s important for kids to develop good financial habits from an early age and that is what Secret Millionaires Club is all about,” Buffett said. “It’s not intended to teach kids how to read a balance sheet, it’s meant to provide a fun way for kids to understand business and develop good habits from an early age,” he said.

A reminder of the importance of parental role models when it comes to money matters (from Canadian survey):

"The CICA Youth Financial Literacy Study 2011, conducted by Harris/Decima,  measured the financial literacy of Canadians aged 16-22. Nine-in-10 respondents (93 per cent) believe that parents should be good role models for responsible financial decisions and 83 per cent have approached their parents for advice about money management."

A sign of the times (from Marketwatch):  "It's Get Smart About Credit Day, says the American Bankers Association. Bankers are going into schools to teach kids about money."  

Commenter to story:  "Taught by banks? Is that a joke?"

A financial literacy board game called NestEgg is being tested in New York by their Department of Youth (from Lincoln Tribune):  

"It's up to the players to help them build their savings for the future - their "nest egg" - and achieve those goals.  A roll of the dice can bring a windfall or disaster."

SmartMoney provides a top ten list of what student loan companies won't tell you including "you may be in over your head" as default rates on loans increase:

"Nearly 10% of federal student-loan borrowers defaulted during the two years ended Sept. 30, 2010, according to the Department of Education, up from 7% in 2008. Private student loan defaults are rising also: Around 5.4% of private student loans defaulted during the second quarter of this year, up from 4.5% a year ago, according to Moody's Investors Service Private Student Loan Indices, which tracks loans."

On the subject of increasing student loan defaults, Penn State is considering bolstering their financial literacy offerings:

"The Penn State rate [default rate] jumped to 4.5 percent and the national average went up to 8.8 percent...In 2009-10, 67 percent of graduating seniors had loan debt. That year, the median debt for undergraduates at Penn State was $31,133, up from $22,690 in 1999-2000...Griswold said there is probably a case to be made for offering financial literacy programs to students.  “Many students do not know how to make informed financial decisions,” Griswold said. “They may borrow more than they need and engage in risky financial behaviors such as using one credit card to pay off another.”

One reason (of which there are many) that levels of student debt continue to rise is the lackluster returns of the stock market over the past decade.  For those keeping score at home, the S&P500's ten year return as of close of trade today has been 3.08%.  Yes, that is not a typo, a measly 3.08% return.  Taking into account the impact of inflation, your real return for investing in the stock market has been negative.  So, those 529 college savings plans which now have almost $150 billion in assets, according to SmartMoney, have fallen woefully short of the rising costs of college.

------------------------------- 

As more and more states mandate financial literacy education, they better include teacher professional development in their plans as this survey indicated (for the record, Wisconsin held their first financial literacy summit recently at Lambeau Field):

"...a University of Wisconsin-Madison survey found that 64 percent of teachers felt unqualified to address the state's financial literacy standards, and none of the state's schools of education require economics or personal finance training for elementary education majors."

On the subject of financial literacy education, real-life simulations seem to have captured this Virginia high school student's attention (all freshmen in Virginia will be required to complete a financial literacy course in order to graduate):

“I think it’s kind of cool because it simulates real life,” Madelynne said of the class. “It teaches you how to buy a car and rent an apartment . . . things we’ll be doing after high school.”

--------------------------

How important is your credit score to your employment prospects?  According to the Society for Human Resource Management, muy importante:  

"In 2010, 60 percent of members of The Society for Human Resource Management ran credit checks on at least some potential hires, up from 25 percent in 1998."

Australian financial services regulator seeks to reform advertising of financial products and slow down those speedy disclaimers at the end of many of these ads:

"Among proposed reforms, the regulator wants advertisements that balance risks and warnings with the benefits and returns offered by a product or service.  For example, warnings, disclaimers or qualifications in radio or television advertisements "should be read at a speed that is comprehensible to an average listener", ASIC said.  As for film and television advertisements, it said risks and warnings should be "easy to understand by an average viewer on the first viewing of an advertisement and not undermined by distracting sounds or images".

Should this type of reform ever make it to our shores and some major bank commercials in the future might need to add the warning "Use of your debit card may result in a monthly fee of $3 - $5."  

Will the Girl Scouts Promise now include "....and I promise to balance my checkbook every month?"  Probably not, but Girl Scouts will be able to start earning financial literacy badges.  Here are the details from The Telegraph (note that student loans are included):  

"From this month, in response to popular demand, the 2.3 million girl scouts will be able to earn a series of badges for financial literacy alongside the classic awards for things like first aid, camping and cooking.

• U.K. parents concerned about future indebtedness of their children (from Female First):  "The research shows that a quarter of mums and dads around the country say despite the more cautious financial environment we’re now in it will still be easier for their kids to get into debt than it was for them and a third think their children will be less able to manage their money than they are.  Almost one in five (19%) say their children will be ill equipped to understand and deal with their own finances as there is simply too much jargon to wade through and not enough practical guidance in schools. Despite this almost a third of parents believe that imparting their own experiences can help their children learn and improve their chances.

• Australia prepared to make commitment to financial literacy education (Sydney Morning Herald):  "Dr Garner said the report showed there needed to be cultural and structural reform in relation to financial education at schools and to encourage people to save money and make household budgets.  ‘‘We are encouraged by the Prime Minister’s pre-election commitment to make financial literacy a mainstream subject in schools across Australia,’’ he said.  ‘‘These programs must be sustained over time, ingrained in our education and culture.’’

• Network for Teaching Entrepreneurship (NFTE) CEO discusses how best to teach financial literacy to low income kids (emphasis is mine):  "The other thing we've talked a lot about lately in America is the fact that Americans need to become more financially literate and really understand the consequences of how they manage and save money.  Obviously many people are scarred from the mortgage crisis they're facing and I think we often make the mistake to think that we can teach the traditional texts of financial literacy -- like teaching young people how to open a checking account -- as though that somehow will make a difference. Well, (poor) young people usually don't have any money to put in those checking accounts. So, using entrepreneurship as a tool to think through and embed within it -- which NFTE does -- the important things about not only making a dollar, but how you manage that dollar is really important for America."

• Columnist at News and Observer makes final plea in her last personal finance column:  "I can't leave without one more plea: Teach financial literacy at home and school.   I've written more than one column about the importance of teaching children that money doesn't just flow from the ATM. They need to be taught to save for the things they want. I felt a small victory in my own home this week when my son asked if he could go on a school trip to Germany if "he saved the money for the trip himself."

• Candy management as a metaphor for personal finance (from Star Tribune):  "My wife and I have tried to instill this trait in our own teenagers through their allowance. We pay for all of their school-related activities; by managing their allowance, our daughters pay for everything else. Every dollar that they save toward college, we double. This has radically changed their buying and saving behaviors. They "need" far less when they are paying for it. As college approaches, they are saving significantly more."

• Personal finance apps go mobile; Pageonce profiled:  "Pageonce is a web and mobile device application that serves as a portal to all of your online accounts...you have access to your credit cards and bank accounts online in the "Finance" section, but that's just one category. There are also areas dedicated to shopping, utilities, travel, email and even social networking accounts.  Pageonce boasts that it has over 3 million users for its product and the company says it is the largest mobile personal finance service in the U.S. You can use it on Apple iPhones and iPads, Blackberries, Android phones and other devices."

• Does having a goal matter when it comes to setting up savings accounts (Visual Economics)?   "From a psychological point of view, setting up different savings accounts to align with your different savings goals makes complete and utter sense. You can name the savings account according to the purpose and set the goal amount you are trying to save. From there, you can make a plan as to how much money you have to save per paycheck, per week, or per month in order to reach your goal. In addition, separating savings goals in this manner also allows you to prioritize your saving efforts. If saving the down payment for the purchase of your first home takes priority over the family vacation, then you know which account needs your focus over another one."

• 529 Plan providers adjusting their product offering and costs (Newsweek):  "Now the skittishness of burned investors and ongoing market volatility have led to increased competition in the 529 space, with providers announcing new products, added features, and reduced costs. One strategy is to offer more conservative options...In recent months, plans from Vanguard and the State of New York have reduced expense ratios by half, and T. Rowe Price said it would cut fees by a third."

• Worried that saving too much will hurt your child's chances of getting financial aid (US News and World Report)?  "If that's what you're worried about, here's my advice: Relax.  Families who save for college are rarely hurt in student financial aid considerations. In fact, it's been estimated that fewer than 4 percent of families who fill out financial aid applications are penalized for their savings."

• National Foundation for Credit Counseling survey finds 70% of respondents plan to pay for holiday gifts with cash or a debit card.  They do caution that debit cards carry less consumer protections than credit cards when it comes to contesting a charge:  "This is a smart choice for many. However, consumers need to be aware that purchases charged to a credit card come with certain protections that aren’t available when using a debit card. For instance, according to the Federal Credit Billing Act, you can contest a credit card charge for a product you purchased but never arrived. Of course you’ll need to notify the merchant and the issuer of the problem, and take reason­able steps to prove your claim, but the law is on your side. If you paid with a debit card and have a prob­lem, you may ultimately get your money back, but it will be much more trouble and take longer than if a credit card had been used."

• JumpStart National Educator Conference on Financial Literacy kicks off on Friday in DC. 

• WalletPop lists their favorite books on personal finance geared towards kids. 

Here are the highlights:

• Prevalence of programs:  48% of the 230 respondents indicated that their school is currently offering a financial literacy program.  For those schools that don't currently offer a program, 51% expect to start one over the next 12-18 months.
  • 66% of schools with a financial program did not have any budget monies set aside for this purpose; 16% had a budget less than $5,000.

• Reasons provided for not having a financial literacy program:  No budget, lack of staffing, lack of support from senior administration, limited turnout from previous efforts, school has low default rate. 

• Financial literacy a requirement?:  Only 13% of schools with a financial literacy program made it a requirement for their students

• Delivery of financial literacy content:  71% offer in-person workshops, 49% provide a reference page on their website, 39% provide online tutorials (e-learning) and 37% provide a one-time orientation session on the topic

• Top five topics covered in financial literacy education:  Budgeting (96%), Credit Cards (89%), Planning for Loan Repayment (80%), Protecting Privacy/Identity Theft Prevention (75%), Reading Credit Report (63%)

• Content development:  Almost 3/4 of respondents (74%) indicated that the financial aid office developed the content for the program with guarantors mentioned by 24% of respondents

• Coverage:  47% of respondents (with a financial literacy program) indicated that less than 10% of students were served by their financial literacy program.  

• Growing interest in programs:  48% of respondents with a financial literacy program in place indicated an increased interest in their program over the past 12 months. 

• Satisfaction:  Less than 10% of respondents rated their financial literacy program as "Excellent."  45% rated their program as "good."

• Recommended programs:  The top five companies named were NEFE/Cash Course, Guarantors (not specified), USA Funds, Texas Guaranteed (TG) and EdFund.  For a listing of all programs recommended by at least one respondent, see earlier SLA Blog post.  

• Sample size:  230 respondents:  43% 4-year privates, 31% 4-year publics, 18% 2-year publics

Thank you to all participants who responded to the survey! 

Before taking apart the events of the few weeks, I thought it was instructive to see how the stock prices of the leading companies in the industry had performed over the past three months (hint:  it ain't pretty):

August 4th has significance as the date that the Senate held a hearing on the recruiting practices at for-profit institutions, at which witnesses (from Bloomberg) indicated that "For-profit college recruiters pressured students to sign up for courses and lied about the cost of programs to boost enrollment."

Here is what has happened over the past few weeks:

• Slowdown in new enrollment starts...
  • University of Phoenix forecast a 40% or greater decline in new starts for their current quarter.  This startling development from mid-October became the canary in the coalmine for the earnings announcements that followed.  Note that none noted as dramatic a drop in new starts. 
  • DeVry (from conference call):  "...we expect to report a modest decline in new student enrollment for undergraduate students in this period."
  • Corinthian Colleges (from conference call):  "15% of total enrollment or 15,000 to 20,000 students going away over time since Ability-To-Benefit students will no longer be enrolled."
  • Strayer saw a 2% decline in new student enrollment in the most recent quarter
  • Capella (earnings announcement):  "New enrollment is anticipated to be slightly down from fourth quarter 2009, due to an increasingly challenging external market environment and our continued focus on attracting high-quality learners prepared for Capella's rigorous academic experience," said Steve Polacek, senior vice president and chief financial officer.
  • Career Education Corp (from Dow Jones):  "Career Education said it expects fourth-quarter new-student enrollments flat to up by low single digits on a percentage basis compared with the prior year...Total enrollment in the third quarter grew 16%, while new-student enrollment increased 6%. That compares with new-student gains of 18% in the prior quarter and 19% in the year-ago period."

• Regulatory risk
  • The Department of Education released their final rules addressing program integrity issues on October 28th.  Note that rules on gainful employment were postponed for now.  Among the new rules:
    
    • Improved disclosure:  "Establishing requirements for institutions to disclose on their Web site and in promotional materials to prospective students, the on-time completion rate, placement rate, median loan debt, program cost, and other information for programs that prepare students for gainful employment in recognized occupations."
    • Elimination of safe harbors for incentive compensation:  "For these reasons, we believe it is appropriate to remove the safe harbors and instead to require institutions to demonstrate that their admissions compensation practices do not provide any commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid to any person or entity engaged in any student recruitment or admission activity or in making decisions regarding the award of title IV, HEA program funds."
      • Here is SLA's analysis of how this change impacted the industry the first time incentive compensation was banned.

•  
  • Program reviews from the Dept. of Education
    
    • Apollo group had this to say in an 8-K filed today:  "Apollo Group, Inc. announced today that it has been informed by the U.S. Department of Education that the Department intends to conduct a program review of University of Phoenix’s administration of federal student financial aid (Title IV) programs in which the University participates. The review, which is scheduled to commence December 6, 2010, initially will cover federal financial aid years 2009-2010 and 2010 to date.

•  
  • 90/10 regulations:  Corinthian on their conference call discussed future tuition increases as high as 20% to comply with 90/10 regulations (SLA commentary:  how many industries can you think of where you deal with slowing growth by raising prices to your customers by 20%...how would students be able to pay for this increase?  More private loans of course, that we know will default at high rates if history holds true).  They noted on their call (my paraphrase) that "81.9% of revenue was derived from Title IV funding; without 90/10 relief, the figure would be 89.8% and 42 out of 49 of their OPEIDs would have been over the 90/10 threshhold."

• Investigation/Litigation
  • Career Education Corp. settled a lawsuit with students at their culinary school:  "The legal settlement involves its California Culinary Academy. In 2007, 37 current and former students sued the school and Career Education for fraud, alleging that culinary school misrepresented its reputation and employment prospects for graduates, according to the company’s public filings. A second lawsuit with similar allegations was filed in 2008.  The settlement of both suits is subject to court approval. The settlement will pay claims by all students who enrolled and/or graduated from the culinary school from Sept. 28, 2003, through Oct. 8, 2008."

•  
  • On October 26th, Apollo Group mentioned that it had received a request for additional information from the SEC in this 8-K filing:  "Today, Apollo Group, Inc. announced that it has received from the Enforcement Division of the Securities and Exchange Commission a request for additional information in connection with the Division’s ongoing informal inquiry regarding Apollo Group. The most recent inquiry requests information regarding, among other things, Apollo Group’s insider trading policies and procedures, a chronology of the internal processing and availability of information about the U.S. Department of Education program review of University of Phoenix commenced in early 2009, and certain information relating to non-Title IV revenue sources.  Apollo Group continues to cooperate fully with the Division in this inquiry.
    • The New York Times wrote about this issue on Sunday
    • On November 1st, the company announced in an 8-K filing that "Dr. John G. Sperling, the Executive Chairman of the Company’s Board of Directors, and Peter V. Sperling, the Vice Chairman of the Company’s Board of Directors, had each adopted prearranged stock trading plans in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and the Company’s policies with respect to insider sales." 

•  
  • WFAA.com in Dallas reported on falsification of employment records at an Everest College campus there:  "This fits into a pattern of student disappointment and deception that News 8 has discovered repeatedly in a five-year investigation of for-profit schools.  Both Ms. Tanwar and Mrs. Praay were shocked to find out that as far as Everest College was concerned, they were employed.  Ms. Tanwar and Mrs. Praay, according to records filed with the state, worked for two companies — one called Paramount Multi-Services, the other, Alexus Dutchess.  "I never heard of them," said Ms. Praay, referring to Alexus Dutchess.  "I never worked at Paramount Multi-Services," said Ms. Tanwar. "And Everest never got me a job."  A News 8 investigation finds that the employment records of 288 former students of Everest were falsified over four years by the school...Alexus Dutchess turns out to be a paper company, used by Everest's former career services director Irma Spears. The company was created by Katherine "Dutchess" Henderson, a friend of hers.  Paramount Multi-services is shown as employing 112 former Everest students. That company did exist, but it never provided 112 jobs to students, as records show."

•  
  • In mid-October, the Florida attorney general began investigating five for-profit education companies (from the Chronicle):  "Florida's attorney general is investigating five for-profit colleges for possible misrepresentations about financial aid, deceptive recruiting tactics, and other practices, an official confirmed on Tuesday.  According to listings on the attorney general's Web site, investigators are seeking information from Argosy University, which is owned by the Education Management Corporation; Corinthian Colleges' Everest College; Kaplan University; the MedVance Institute; and the University of Phoenix.  The investigation will try to determine whether the colleges have violated Florida's law prohibiting deceptive or unfair business practices, said Ryan Wiggins, a spokeswoman for the attorney general."

• Here are a few of the strategies/tactics that schools are implementing in this new environment:
  • University of Phoenix:  Introduced three week, non-credit University Orientation for all new students without 27 transfer credits.    
  • Corinthian:  no longer enrolling Ability-To-Benefit (ATB) students, that is, those students without a high school or GED degree.  These students drop-out and default on their loans at a much greater rate than non-ATB students.  Corinthian also noted their significant investments in a public affairs campaign, as well as additional costs to more effectively manage defaults.
  • Career Education:  According to Dow Jones, the school is shifting students away from programs that may have difficulty qualifying under gainful employment rules:   "Pre-empting the rules' release, the company stopped adding new students to its large medical coding and billing program, instead offering spots in a broader health administration degree program in an effort "aimed at further optimizing potential employment opportunities for graduates.
  • DeVry doesn't anticipate making major changes:  "However, we aren't making large operational changes in anticipation of the new rules. Part of the reason for this is that DeVry is always focus on quality even though that it meant slower growth sometimes. For example, DeVry University is not an open enrollment institution. So we already turned away applicants who don't meet our admission standards. It's not like we're now for the first time having to implement these kinds of quality standards and having to go through a long process of figuring out what works."
  • Strayer noted their pricing power and plan to raise prices by 5% come January 1:  "The gap between the earnings of the college degree and the employment level, differential between people with the college degree versus high school degree is widening, the longer the period of the downturn. So if anything, I think that there is more inherent pricing power."
  • Capella toughening their enrollment standards at their online university (Star-Tribune):  "Capella Education Co. told Wall Street Tuesday that enrollment growth at the online university would slow as it toughens enrollment standards. Investors slashed more than $12 a share off the stock, which closed the week at $54.89."

Stay tuned...as for whether a Republican House of Representatives will make a difference, Bloomberg News had this to say: 

"For-profit colleges, whose stocks have lost 35 percent this year, are likely to get help from Republicans to ease limits on federal grants and loans that provide the bulk of education companies’ revenue.  Republican Representative John Kline from Minnesota, in line to become chairman of the House Committee on Education and Labor, has criticized a proposed U.S. Education Department regulation that ties for-profit colleges’ eligibility for student aid to whether graduates pay back their loans. The department today began two days of hearings on the so-called gainful employment rule...Republicans may seek to soften the rule either by negotiating with the administration on its other goals, such as expanded early childhood education, or by advancing legislation to revoke some of or the entire proposal, Price said. Either approach will present a challenge, he said.  “It’s unclear whether Republicans can bring gainful employment to the horse-trading block,” he said. “It’s an uphill battle for them to get legislative proposals past a Democratic Senate filibuster or a presidential veto.”

Here are the programs mentioned, with the frequency that they were named in response to this open-ended question on the survey:  What source(s) would you recommend for a financial aid administrator interested in developing a financial literacy program for his/her institution?

Here are the details provided in a recent email:

Effective November 1, 2010, interest rate tiers are as follows¹:

• Prime +     .20% (3.39% APR)¹
• Prime +   1.95% (5.05% APR)¹
• Prime +   3.75% (6.71% APR)¹
• Prime +   7.70% (10.21% APR)¹

----------------------------------------------------------------------------------
1. Subject to normal credit approval.  Loan approval subject to program guidelines.  APR may increase or decrease after consummation. Consummation occurs upon disbursement of loan proceeds.  The Variable Rate shall be equal to the highest Prime Rate as published in The Wall Street Journal in the Money Rates section plus a margin of .20% to 7.70%, rounded to the nearest one-tenth of one percent (0.10%). The Variable Rate can change, and will be effective for the first day of any calendar month for a change in the Current Index that took place on the 15th day of the previous month.  This interest rate is effective as of 11/01/2010, and assumes a Prime Rate value of 3.25%.  The interest rate is variable and can therefore increase and/or decrease over the life of the loan.

• Elizabeth Warren, director of the Consumer Financial Protection Bureau, spoke to student journalists earlier this week about financial literacy:  

"A major goal of the new agency is to give students the information they need to make good financial decisions, she said.  “We will empower young people to make smart choices by promoting financial literacy and safeguarding retirement, investment and, most of all, putting the right tools in the hands of students,” Warren said.  Warren believes that financial literacy is a major concern among Americans today. “Americans need more financial education, more information on how to survive in a complex financial world,” she said.  The bureau aims to address this, she explained, by developing new approaches to financial literacy and by making finance more approachable and relevant.  “It should not be the case that people who are trying to make good decisions get sucked into the wrong debt and are hounded for life,” she said. “It’s just wrong.”  Warren said it is the job of her newly commissioned agency to put a stop to these practices and to say “no more.”

• Bill Gross of PIMCO is one of the most important, respected voices (oh, and successful) in the investment community.  This should be required reading for those who want to understand what is happening with the economy (unfortunately, no happy talk here).  The title "Run Turkey, Run."  Here are a few excerpts:  
  • On the state of the political process:  "They say a country gets the politicians it deserves or perhaps it deserves the politicians it gets. Whatever the order, America is next in line, and as we go to the polls in a few short days it’s incumbent upon a sleepy and befuddled electorate to at least ask ourselves, “What’s going on here?” Democrat or Republican, Elephant or Donkey, nothing much ever seems to change. Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn’t a choice between chocolate and vanilla folks, it’s all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath.
  • On the Federal Reserve's likely next move after their meeting next week:  "Wednesday is the day when the Fed will announce a renewed commitment to Quantitative Easing – a polite form disguise for “writing checks.” The market will be interested in the amount (perhaps as much as an initial $500 billion) as well as the targeted objective (perhaps a muddied version of “2% inflation or bust!”). The announcement, however, has been well telegraphed and the market’s reaction is likely to be subdued. More important will be the answer to the long-term question of “will it work?” and perhaps its associated twin “will it create a bond market bubble?”

• Ever wanted to run an auto dealership?  OK, me neither, but you may want to check out this game that Michigan State University students developed, a credit education game called "DealerTown Ford."  (Wasn't I just writing about financial literacy games?)

"The game was created by students in SpartaSoft, MSU’s student video game developers’ organization. The team won a video game design challenge against the University of Michigan’s WolverineSoft organized by Ford Credit to create an application tied to the U.S. launch of the new Ford Fiesta."

• Haddonfield, NJ has a financial literacy program in their Adult School that teaches two audiences:  parents and their child(ren).  From CourierPostOnline.com:  "...He chose a two-session course at the Haddonfield Adult School because it encouraged parents to come with their children.While it's not unusual for parents to talk to their children about money and the high cost of everything, it is unusual for the kids to listen, said instructor Bill Wallner."

• Bentley University and Misercordia University sign up with financialfootprint to provide their students with online financial education (from press release): 

"financialfootprint, LLC announced today the public launch of their online-based service for personal finance education. Designed specifically for young adults, financialfootprint provides education and guidance about personal finance issues ranging from student loan options to credit card basics. Using real-time online interaction, young adults are paired with a personal finance expert of their choice to answer financial questions and guide them towards financial solutions. financialfootprint is now available for individual use through their website and through relationships financialfootprint establishes with academic partners."

• New national test for financial literacy to replace the old test developed by JumpStart.  Student scores on that test had been declining over the past decade so one happy result of having a new test will be a new baseline to be set in 2011 (from CBS MoneyWatch):

"JumpStart skipped the scheduled 2010 round of testing and outsourced the job to Learning Point Associates, a highly regarded education consultant that will begin testing students anew in spring 2011. The new test will be more scientific, rigorous and sweeping, and it will reflect the very latest thinking as to what students should know about money — and when they should know it."

• Unemployed hedge fund analyst describes life teaching financial literacy to high school students (from Minyanville): 

"Maybe I forgot how much we know at that age, or maybe it's the fact that if we'd call 2000 the start of the secular bear market, these kids have grown up in a bear market, have seen their families and friends struggle, and don't see the world as a cash machine and full of open-ended possibilities the way we did growing up in the '90s.

One thing is for sure, their views on consumption, debt, and risk have changed dramatically from the time I was that age. At the end of every lesson was a question where I'd give the students a scenario and they'd have to choose option A or B. For instance, in the first lesson, the question was whether to spend a $300 birthday check on a new gaming system or save the money for later. A sizable majority of the class voted to save the money."

• How much can regulation really protect an uninformed consumer?  Here are some opinions from this piece in Knowledge@Wharton:  

"Both Mitchell [Wharton business and public policy professor Olivia Mitchell] and Berenbaum [David Berenbaum, chief program officer National Community Reinvestment Coalition] believe that financial education should start in the schools, and that regulators can help by mandating certain requirements. "Schools do not adequately prepare consumers to understand the process and paperwork from basic banking to complex mortgages," Berenbaum notes. As for state mandates, Utah, Virginia, Missouri and Tennessee all require at least a one-semester course in high school devoted to personal finance, and 20 other states require that personal finance at least be taught through another course, according to data from the Washington, D.C.-based JumpStart Coalition. However, the Dodd-Frank Act does not even touch on the idea of financial education curriculum, let alone mandate requirements.

"It's been shown that when certain states have mandated financial education in high school, the young adults in those states are saving more, planning more and have more knowledge of interest rates," Mitchell says, adding that the most important piece of information one can learn is understanding compound interest.

Berenbaum is also confident that mandated financial education would help improve overall financial literacy in the United States. And he notes that the most important concept that should be taught is an "understanding of the impact of debt," since a low credit rating -- which is the result of poorly managed debt -- can significantly affect one's ability to get everything from a cell phone contract to a reasonable interest rate on a mortgage."

• At Ariel Community Academy in Chicago, the Stock Market Game takes on added meaning since students are investing real dollars (from Edutopia): 

"Each Ariel class receives an endowment of $20,000, which they begin to actively manage in 6^th grade. When they graduate 8^th grade, the class donates half of their profits to charity. Each student receives an equal share of the remaining profits, usually just over one hundred dollars, to invest on their own."

• Assistant Secretary Barr, a candidate for CFPB director, discusses importance of financial education in late September (note his comments about when financial literacy is most effective which I have bolded): 

"Financial Education is critical. People need the financial skills and knowledge to help them make good decisions. The Treasury Department in conjunction with the Financial Literacy and Education Commission has recently issued a draft of core financial competencies. The development of core competencies is a fundamental step in establishing a clear understanding about what individuals should know and the basic concepts program providers should cover. Furthermore, the Core Competencies are particularly important in establishing a baseline of knowledge, which is crucial for both individuals and providers of financial education. This baseline of knowledge addresses the current lack of consistency in various financial literacy programs in identifying goals and objectives including how program success is measured, and what financial information and problem-solving skills participants can be expected to acquire.

There is also significant evidence to show that financial education is most effective when it is immediately relevant, is part of a financial decision, and there is a product or services that will allow the individual to carry out their decision, which brings us to the next key piece.

Financial education must go hand-in-hand with Financial Access. Individuals need the knowledge to make good financial decisions, but that knowledge is not helpful unless they have access to safe and affordable products. Likewise, if individuals have access, but a poor understanding of how to use the products or services, the chance for misuse or that they will be taken advantage of is much greater. Effective financial education and financial access combine together to create Financial Capability: The ability of individuals to make and execute good financial choices for themselves and their families."

• Optimism reigns supreme among youth, right?  WRONG, according to this survey (from Credit.com):

"A recent survey conducted jointly by research firm Gallup and HOPE, a financial literacy nonprofit organization, reveals a stark shift in the dreams of U.S. teens today and how they plan to accomplish their goals. According to the results, one in three respondents do not consider homeownership a part of the American Dream. Another 40 percent said education and staying in school are not factors in making money in the future."

• Western Michigan University used results from a student survey to rate their alternative lenders.  The five survey questions focused on application process, value, customer service, would student recommend to friend and overall satisfaction.  Almost 20% of their student borrowers responded to the survey.  With a top possible score of 20, the scores for the seven lenders varied from 12.97 to 15.85. 
  
  • Please contact me at tranzetta@studentlendinganalytics.com if you are interested in implementing a similar survey tool at your school (at no cost!)

• Minnesota State University, Mankato provided students with two lender lists.  One is a list of all lenders used by MSU students over the past three years presented in alphabetical order.  The other list provides volume data by lender, showing that Wells Fargo provided $6.8 million in loans to students in 2009-10 with Minnesota's SELF loan at #2 with $2.9 million in volume.  
  • Let the analyst in me dream...if only all schools provided this information...

• University of Southern California provides a link to the TILA disclosures (the application/solicitation disclosures now required from all lenders) for each lender on their list.  Lenders are required to provide this information to schools whom they have a "preferred lender arrangement."  Given that most lenders have buried this disclosure into their application process (Citizen's Bank being an exception by placing this disclosure on their home page), placing this information on the school's lender list can be helpful. 

• At the bottom of their lender list, Tufts University provides the average amount borrowed by Tufts students last year through each of the lenders on their list. 

• More schools are providing information to students about self-certification and the need to complete that form prior to funds being disbursed.  Here is one example (and there were numerous) from Lycoming College:  "Due to Regulation Z requirements, banks/lenders must provide several disclosures and a Self Certification form to the borrower BEFORE the loan will be disbursed. This will slow down the approval and disbursement of all private student loans. PLEASE FOLLOW ALL INSTRUCTIONS FROM THE LENDER AND RESPOND IN A TIMELY WAY SO YOUR LOAN CAN BE PROCESSED AS QUICKLY AS REGULATIONS ALLOW. Private student loans will now take a minimum of three (3) weeks from the start of your application to disbursement. Your bank/lender will give you a Self Certification form, but here is a lender-neutral form in case you do not receive it. The student is responsible to complete this form and return it to the bank/lender, not Lycoming College. Information required for this form - Cost of Attendance and Estimated Financial Assistance are both found on your award letter that can be found on WebAdvisor. If you do not understand any of the required documents, you must contact your bank/lender for clarification."

Have any more interesting examples?  Please send them along.