Archive for ‘back to basics’

July 14, 2014

College tuition discounts continue to climb

by Grace

The college tuition discount rate – the amount of financial aid as a percentage of tuition and fees – is “again at an all-time high”.

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College continue their “high tuition, high discount” policy.

Private colleges are continuing unabated their strategy of setting high sticker prices while giving most of their students steep discounts, according to the latest survey of private colleges by the National Association of College and University Business Officers.

The colleges, many of which are struggling to meet enrollment goals, are taking in only 54 cents for every $1 they claim to charge in tuition.

The “high tuition, high discount” business model is often confusing to students and parents, but it’s how things are done at most private colleges: the colleges charge high prices and then offer students they want huge discounts. The discount comes in the form of need-based aid for low-income students and “merit” aid for students with characteristics that make them desirable to a college. At wealthy colleges, endowments may have actual funds to replace lost tuition revenue, but most colleges are just waiving the chance of getting more.

Is steep discounting a desperate, short-term strategy?

“If you do too high a discount, then perceptions of desperation creep in,” says Rao. People start to ask: “Are they going out of business? Is this product a dud?”

Mitchell Hamilton is an assistant professor of marketing at Loyola Marymount University. He says deep discounts are a short-term strategy at best. “When you’re looking at discounts of half off or more, or buy one get one free, those are for businesses that need immediate results,” he says. “Private universities are hoping that this is just a strategy to stay afloat until the economic situation gets better.”

Most observers seem to agree that if this trend becomes a race to the bottom, the losers will be ‘”smaller-sized, ‘no-name,’ tuition-driven schools.”‘  Top ranked colleges will continue to thrive.

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Ry Rivard, “Discount Escalation”, Inside Higher Ed, July 2, 2014.

Anya Kamenetz, “How Private Colleges Are Like Cheap Sushi”, NPR Ed, July 12, 2014.

June 23, 2014

How is home equity treated for college financial aid?

by Grace

The short answer:

Your home equity will count on the CSS Profile, but not the FAFSA.

Michelle Kretzschmar of Do It Yourself College Rankings explains more.

Since each school decides if they use home equity in their methodology and how much to consider, how much home equity will affect financial aid will vary by institution. Mark Kantrowitz of  Fastweb, estimates that colleges cap the amount of equity (value of home-mortgage) considered at between two to three times annual income. Troy Onink in Forbes reports that  “home equity counts under the Institutional Methodology, but only up to 1.2 times the parent’s adjusted gross income (AGI) under the Consensus.”

When in doubt, ask the school directly.

If you want to know the actual figure, you’re best bet is to ask the college. According to Money Watch.com

If your home has appreciated a lot, ask private colleges how they factor in home equity when determining aid, advises Paula Bishop, a financial aid consultant in Bellevue, Wash. Their answers may differ dramatically. Some schools, such as Princeton University, ignore home equity. Others, such as Boston College and American University, include 100 percent of it as an asset.

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Troy Onink, “How Assets Hurt College Aid Eligibility On FAFSA And CSS Profile”, Forbes, 2/14/2014.

Michelle Kretzschmar, “Does home equity affect financial aid?”, Do It Yourself College Rankings, 11/11/2013.

May 27, 2014

What is the maximum 529 plan contribution limit?

by Grace

So you want to contribute the maximum amount to your child’s 529 plan?  Maybe you received a generous inheritance, and want to set aside enough funds to assure your child will be able to attend any college he chooses.

Here’s what the IRS says:

Q. Are there contribution limits?

A. Yes. Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year. For information on a special rule that applies to contributions to 529 plans, see the instructions for Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

In practice, “the amount necessary” varies and is determined by each state-sponsored plan, with amounts ranging from about $335,000 to $400,000.  Check out Savingforcollege.com for a complete list of state maximum amounts.

Here is how the New York 529 Advisor-Guided College Savings Plan explains the maximum contribution.

How much can I contribute to my account?

You can contribute on behalf of a beneficiary until the total balance of all Program accounts held for the same beneficiary reaches an aggregate maximum balance, currently $375,000. If there’s more than one account owner contributing for the beneficiary, this is the total for all accounts. Once this limit is reached, you can no longer make additional contributions, but you can continue to accumulate earnings.

Gift and estate tax implications

Since a 529 contribution is treated as a gift to the beneficiary for tax purposes, another consideration for donors is to understand how amounts greater than $14,000 could trigger tax liabilities.

… your contribution qualifies for the $14,000 annual gift tax exclusion and so most people can make fairly large contributions without incurring the gift tax.

For contributions greater than $14,000, 529 plans offer a unique gift-tax exclusion feature.

… Specifically, you can make a lump-sum contribution to a 529 plan of up to $70,000, elect to spread the gift evenly over five years, and completely avoid federal gift tax, provided no other gifts are made to the same beneficiary during the five-year period. A married couple can gift up to $140,000.

A good explanation of the details on how this works can be found at the Ameriprise website.

Related:  “Most families are not taking advantage of 529 plans for college savings” (Cost of College)

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May 7, 2014

College financial aid advice for mothers going through a divorce

by Grace

Forbes contributor Jeff Landers answers a few of the most common questions that women going through a divorce have about college financial aid. First, he explains which parent should file the FAFSA.  (The answer is the custodial parent.)  Then he explains why this matters.

Why does it matter who completes the form?

The FAFSA contains many detailed questions about a student’s family’s income and assets. The responses are entered into a formula that determines the Expected Family Contribution – in short, how much money you will be expected to come up with toward your child’s college expenses.

If you are the custodial parent, it’s your income and assets that go on the form. So if, for example, your ex-husband makes $500,000 a year in his business, and you make a tenth that much working part time from home, your child would likely be eligible for more financial aid if the eligibility is determined based on your income alone.

If the custodial parent remarries, the new spouse’s income and assets have to be listed on the FAFSA. Unfortunately, while it may not seem fair, that can lower your child’s eligibility for financial aid.

In his next answer, Landers goes on to shed light on the sometimes confusing details of non-federal financial aid.  Click on the link at the top of this post to see all the questions and answers.

Related:  Divorced or absent fathers are let off the hook in paying for their kids’ college (Cost of College) 

April 30, 2014

Student loans ‘Voxplained’

by Grace

Vox Cards explain student loans.  Here’s the first card.

What is a student loan?

A student loan is money that banks or the federal government lend to students or parents to pay for higher education. Student loans can be used to pay tuition, fees and room and board, and they can also be used for living expenses and books. Student debt refers to the total amount of outstanding student loans from students, graduates, and dropouts.

The majority of students — more than 70 percent of all bachelor’s degree recipients — now borrow money to pay for college, a higher proportion than ever. Those students owe $29,400 on average at graduation. Student debt drew public attention and concern as the recession hit and graduates fell behind on their loans. There’s now agrowing consensus among economists that student debt is a drag on the economy, too, because indebted graduates and dropouts have less money to spend on other things.

The federal government has by far the largest share of the student loan market. Until 2010, the federal government lent money to students by guaranteeing and subsidizing loans from banks like Sallie Mae. In 2010, the Education Department cut out the middleman and became the sole student lender.

Here is their explanation on how student loans are treated in bankruptcy.

Why can’t student loans be discharged in bankruptcy?

Student loans are almost never dischargeable in bankruptcy, unlike credit card debt, mortgages, car loans, and most other forms of consumer debt. As lending to students has grown, so has the difficulty of discharging federal loans through bankruptcy. Getting rid of student loans now entails suing the lender (often, the federal government) and proving to a judge that circumstances are so dire there’s no way the loans will ever be repaid. Fewer than 1,000 people, out of more than 32 million student loan borrowers, try this each year.

There are a couple of reasons for this: some people are concerned that college graduates could decide it’s better to declare bankruptcy while they’re young and take the hit to their credit for several years, rather than repay tens of thousands of dollars of student debt. Federal student loans also offer consumer protections and repayment flexibilitythat credit card bills and auto loans generally do not.

Until 1998, federal student loans could be discharged or restructured in bankruptcy after a waiting period of several years. Private student loans were dischargeable in bankruptcy until 2005. Some people think these restrictions should be relaxed: Senate Democrats have proposed legislation that would make private loans dischargeable in bankruptcy again, and the Center for American Progress has called for a two-tier student loan system that would make some loans dischargeable.

In case you’re not yet familiar with Vox Media’s recently introduced Vox Cards, Margaret Hartmann at New York Magazine offers an explanation.

“Vox Cards,” which explain complex topics in a format that’s a mix between Q & A and a slideshow. The editors say:

They’re inspired by the highlighters and index cards that some of us used in school to remember important information. You’ll find them attached to articles, where they add crucial context; behind highlighted words, where they allow us to offer deeper explanations of key concepts; and in their stacks, where they combine into detailed — and continuously updated — guides to ongoing news stories. We’re incredibly excited about them.

Basically, it’s like a more attractive Wikipedia page written by one well-informed nerd on the internet rather than many nerds on the internet.

Too much spoon-fed information?

I’m not completely sold on the Vox Cards format, but they do seem to offer some utility.  Will this spoon-feeding of information in the media become more widespread?  It seems to have become more common in our schools, where prefabricated study notes are frequently distributed to students in advance of exams.

The entire student debt card stack can be accessed on the Vox Media site:  Everything you need to know about student debt,  By Libby Nelson, April 21 2014

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April 16, 2014

How to talk to your kids about paying for college

by Grace

When should parents have the “talk” with their children?

Of course, I mean the talk about how their college education will be financed.  According to comments in a recent College Confidential thread, fourteen is too early and 12th grade is too late.  And just like sex education, kids should not be hit with everything all at once.

It’s like the sex talk … Tell them a little at a time in chunks they can understand.

“Parents of High School Juniors: Talk Finances NOW” is the title of the thread, and the original poster wants families to avoid the disappointment that sometimes occurs this time of year for high school seniors.

If you are the parent of a high school junior who will be applying to colleges next year, now is the time to take a close look at what you will be willing and able to pay toward your kid’s college education–and to make sure your kid understands it. You may never have told your kid about your family’s finances–now, you must do so, even if you’d rather not. Don’t be the subject of a thread next year when your kid says, “My parents told me I could apply to any college I wanted and they’d make it work, but now they’re saying I have to go to the relatively undesirable college that’s giving me a scholarship.”

So, look at some price calculators on college websites, get financial advice, think about whether your kid will have to have scholarships, what you feel comfortable borrowing (if anything), what you will expect your kid to contribute, whether you will expect your kid to pay back any of the money you spend on education, etc. And share the result with your kid. There should be no unpleasant surprises when acceptances come in next year–at least, there should be no surprising changes in your position.

In US News, Ryan Lane outlines a series of steps in planning for the talk.  It’s important to set clear expectations, and he even suggests putting it in writing to instill a better understanding.  Whatever else they do, parents should avoid the mistake of making a vague and uninformed promise that “we’ll find a way to pay” for college.

One way to begin the process is to run a few Net Price Calculators for some prospective colleges, including both private and public institutions.  It can serve as a reality check in laying the groundwork for the big talk.

March 24, 2014

Need-based college financial aid often based on ‘student’s academic merit’

by Grace

When some colleges award financial aid, ‘even “need-based” grants aren’t based solely on need: The size of the grants also depends on a student’s academic merit’.

While families do not usually know the details of how financial aid is disbursed, colleges have access to comprehensive, detailed information about applicants in what amounts to “a massive information imbalance”.

Most colleges offer “vague and superficial” disclosures about how they allocate their financial-aid dollars, said Mark Kantrowitz, a financial-aid expert with Edvisors, which publishes websites about paying for college. “They don’t give details about the actual formulas they use.”

Schools use “financial aid leveraging” to attract stronger students.

While universities don’t want to disclose the details, they have become increasingly strategic in recent years about how they use their aid and which students get it. Aid isn’t just given to students in need, it’s also used now for what schools call “financial aid leveraging” — often to entice high-scoring students who will help a school’s ranking or to give a small, feel-good discount to attract out-of-state students who will still end up paying a higher price.

Boston University is unusually candid about its strategy of using need-based financial aid to attract stronger applicants.

If you are an incoming student, your application for a need-based BU grant award will be considered based on several factors. These include calculated financial eligibility, academic achievement, and the availability of funds for your program of study.

BU publishes informative student profiles showing average aid awards.  I ran some simplified* Net Price Calculations that further illustrate how their financial aid works.  Given the same financial need, the stronger student is would receive more need-based financial aid.

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The Straight-A Student is estimated to receive $35,500 in grants and scholarships, compared to only $12,00 for the Solid B Student.  Remember, this is need-based financial aid.  Merit scholarships may be awarded in addition to these amounts.

* In these examples, total earned income was $80,000/year.

Marian Wang,  “How Exactly Do Colleges Allocate Their Financial Aid? They Won’t Say”, ProPublica, Feb. 25, 2014

Related:  Psst – one of Duke’s so-called merit scholarships is actually need-based (Cost of College)

March 7, 2014

What is the most important secret for a SAT ‘Perfect Score’?

by Grace

20140304.COCPerfectScoreProject1The Perfect Score Project: Uncovering the Secrets of the SAT by my friend Debbie Stier is described as “one of the most compulsively readable guides to SAT test prep ever”.

As it climbs the charts in popularity, this book is attracting praise as “a toolbox of fresh tips”, as well as some criticism that it is the work of a “hyperprotective, status-seeking” helicopter mom.  The criticism seems to stem mainly from some selective editing in the book’s promotion, and clarification is provided over at Kitchen Table Math.  While there’s no doubt that Debbie is a very involved parent, I can attest that she does not fit the image of an overbearing, pushy mother.  In fact, she has helped me in gaining better insight into the type of supportive parenting that is instrumental in launching children to a satisfying and independent adult life.

The revamped SAT may change some details on the best ways to prepare for the test, but I believe that one of Debbie’s core messages will endure:

… if you have a solid foundation, test prep, great test prep works. if you don’t have a solid foundation, no amount of test prep can help you.

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February 25, 2014

Back to basics on understanding the Expected Financial Contribution

by Grace

In the process of determining your family’s eligibility for college financial aid, it is important to understand exactly what the Expected Financial Contribution (EFC) is, and what it is not.

Here is a good explanation from Troy Onink in Forbes.

Calculating Your Expected Family Contribution (EFC)

Regardless of the aid form(s) the student is required to complete and submit as part of the process of applying for financial aid, and after all of the time and information it takes to complete the form(s), it all boils down to three letters, EFC, which stands for expected family contribution. You provide your financial information on the aid forms (FAFSA and CSS Profile), submit the forms online to the processing centers for each respective form, and the information from the forms goes into the aid calculations (the Federal Methodology, Institutional Methodology and Consensus Methodology).

The output of those need analysis calculations is the student’s expected family contribution (EFC) toward the cost of college. The student’s EFC is the minimum amount the student is expected to contribute toward the cost of college. Thus, EFC represents a dollar amount. It is the “output” of the aid forms and calculations. Your data goes in and your child’s EFC comes out and goes to the colleges’ aid departments that the child asks the data to be sent to on the aid forms. All three of the EFC formulas focus primarily on the assets and income of the parents and student, family size and the number of dependent children enrolled in college in a given year to assess the family’s ability to pay for college using the income and assets that they have. And because the three formulas calculate EFC differently, it’s likely that the student’s EFC under each formula will also be different.

As a general rule, the lower the EFC the higher the financial need and therefore the higher the chance of qualifying for financial aid.

From the FAFSA site comes this clarification:

Your EFC is not the amount of money your family will have to pay for college nor is it the amount of federal student aid you will receive….

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February 13, 2014

Paying for SAT tests can be the first financial hurdle in affording college

by Grace

The cost of SAT and AP tests can easily amount to hundreds of dollars, but low-income students may be eligible for fee waivers.

A high school senior complains about the high costs of College Board tests.

With college-admission deadlines quickly approaching, my debt to the College Board keeps growing. Two SAT tests, five subject tests and six Advanced Placement (AP) tests later, I am ready to report my scores through the College Board website to the 10 colleges to which I am applying. On top of the total $102 I paid to take the SAT, $114 for the subject tests, and $534 for the AP tests, the College Board now demands $11.25 for each electronic submission of the test scores to the schools on my list.

That makes a total of $750, including the $100-plus needed for electronic scores submission.  Are these fees too high? 

The College Board should behave more like the nonprofit it claims to be. Lowering the cost of the SAT would encourage more students whose parents make modest incomes to retake the test and compete against students from higher income households who often take the test upward of four times, aiming for higher scores. (I took the test twice.)

The total cost of applying of applying to college can easily reach thousands of dollars, creating a strain for many low- and middle-income families.  On the other hand, doing well on an AP test can generate college credit for a student, presenting a substantial value when compared to the typical cost of college tuition.

The College Board offers fee waivers for lower-income students who meet their criteria.

Related:  A recommended schedule for taking the SAT, ACT, and AP tests (Cost of College)

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