Archive for ‘paying for college’

June 4, 2014

Home equity loans regain popularity as college costs continue to rise

by Grace

A rebound in house prices and near-record-low interest rates are prompting homeowners to borrow against their properties, marking the return of a practice that was all the rage before the financial crisis.

College costs continue to rise, so home equity loans may rebound in popularity as a tuition-funding vehicle.

Ian Feldberg planned to open a $200,000 Heloc this week with Belmont Savings Bank to help pay his son’s college tuition. The medical-device scientist purchased his home in Sudbury, Mass. for a little over $1 million in 2004, and estimates that its value dipped as low as $800,000 during the financial crisis. However, after applying for the line of credit, he found that its value had completely recovered.

“I’m very pleased about that. My options for tuition fees were either that or to cash in on my pension prematurely,” he said.

A too-big-to-fail bank steps up home equity lending, and Tyler Durden of Zero Hedge expresses some concern.

The Wall Street Journal reported yesterday that home-equity lines of credit (Helocs) had increased at a 8% rate year-over-year in 1Q14. Some banks are more aggressive than others, and perhaps we shouldn’t be surprised to see TBTF government welfare baby Bank of America leading the charge, with $1.98 billion in Helocs in the first quarter, up 77% versus 1Q13.

What could possibly go wrong?

As HELOC delinquencies are off their highs (for now) but remain elevated… (we are sure this renewed ATM usage on the back of created wealth and stagnant wages won’t harm that downward trend at all…) – will we never learn?

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And then there’s this.

Think about that for a minute. A “medical-device scientist” can’t send his kid to college without either a Heloc or cashing in on his pension.

Life goes on.

Related:  “Federal Direct PLUS or home equity loan for college costs?” (Cost of College)

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Tyler Durden, “Home Equity Loans Spike As Americans Scramble For Cash”, Zero Hedge, 05/31/2014.

May 28, 2014

American teens are not interested in summer jobs

by Grace

Fewer teens are working.

… In 1978, nearly three in four teenagers (71.8%) ages 16 to 19 held a summer job, but as of last year, only about four in 10 teens did, according to data from the Bureau of Labor Statistics for the month of July analyzed by outplacement firm Challenger, Gray & Christmas . It’s been a steady decline, seen even during good times: During the dot-com boom in the late 1990s, when national unemployment was only about 4%, roughly six in 10 teens held summer jobs….

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And they are not very interested in getting jobs. Only 8.3% of teens who were not working last summer said they even wanted a job.

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This doesn’t mean that teens are simply tanning by the pool or binge-watching Bravo (though some certainly are). Challenger says that many teens are in summer school (rates of summer school attendance are at one of the highest levels ever, he says), volunteering, doing extracurricular activities to pad their college applications and trying out unpaid internships. And all of these are worthwhile endeavors (well, minus the tanning and Bravo), especially as it becomes more competitive to get into many elite colleges.

Lack of work experience can be a disadvantage.

That said, experts say that paid work has value for a number of reasons — and that teens (even those who plan to go to college) who don’t do it may be at a disadvantage. “It’s critical for teenagers to work, to begin to understand the working world, the value of a paycheck” says Gene Natali, co-author of “The Missing Semester” and a senior vice president at Pittsburgh investment firm C.S. McKee. “Choosing not to work a paid job has consequences.”

The good old days?

One of my older relatives had a job in high school delivering both the morning and afternoon newspapers.  He and a friend would rise early each day to roll up and deliver papers before their first class, and then repeat the routine after school.  He was also in the school band, played varsity tennis, and maintained good grades, clearly demonstrating he was able to manage his time effectively.  A generation or two later, it’s hard to imagine many kids successfully maintaining a similar schedule of activities. Many of them need reminders to take their Adderal in the morning, and think they are too busy for a part-time job.  Maybe my relative was a remarkable young man, but many of his peers also worked during high school.

Times have changed.  Expectations have changed.  Kids have changed.

Related:  “Teens are too busy preparing for college instead of working” (Cost of College)

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Catey Hill, “American teens don’t want to work”, MarketWatch, May 3, 2014.

‘Teen Summer Job Outlook Teen Employment Culd Remain Flat as More Say “Nah” to Summer Jobs’,  Challenger, Gray & Christmas, Inc., April 28, 2014.

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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 21, 2014

Apply now for the New York State STEM full-tuition scholarship

by Grace

The deadline to apply for the newly introduced New York State STEM scholarship is August 14.

The NYS STEM Incentive Program provides a full SUNY or CUNY tuition scholarship for the top 10 percent of students in each New York State high school if they pursue a STEM degree in an associates or bachelor degree program and agree to work in a STEM field in New York State for 5 years after graduation.

The dual goals of the program include helping students pursue STEM careers and promoting the state’s economy.

Innovative programs like the STEM Incentive Awards will help students compete in academic fields essential to the future of our state and nation,” said CUNY Interim Chancellor William P. Kelly.

“Through this program, New York State is helping to foster a connection between a student’s interest in STEM and their ability to successfully pursue a STEM career,” said Elsa Magee, Acting President of New York State Higher Education Services Corporation (HESC), the state agency that will administer the program. “These awards will encourage more of our most talented students to pursue their love of science, technology, engineering and math in New York State, which benefits our State economy directly and the global economy, generally.”

Failing to fulfill the program requirements can result in significant penalties.  For example, if a recipient does not complete the STEM degree or does not follow through after graduation on the requirement to work “full-time for five years in the fields of science, technology, engineering, or math in New York State, while maintaining residency within the State”, he must pay back the award.

The full list of approved occupations includes farmers, computer programmers, web developers, actuaries, cartographers, engineers, and secondary and postsecondary science teachers.

There does seem to be some flexibility in the choice of occupations.

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Related:  “Free tuition at New York state universities for top STEM students?” (Cost of College)

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 Sarah Darville, “State launches STEM scholarship for SUNY, CUNY-bound grads”, Chalkbeat New York, May 6, 2014.

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 28, 2014

Pay for college every time you gas up the car

by Grace

College rewards programs are used by one in five families to help pay for college.  The dollar amounts may not be huge, but these programs are easy to use.

FinAid gives us an overview of college rewards programs, also known as loyalty programs.

Loyalty programs, also known as affinity programs, provide a rebate to the consumer in exchange for shopping at particular retailers or purchasing particular products or services. This section of FinAid provides information about loyalty programs that provide a reward in the form of tuition benefits, such as credits to a section 529 plan for your children. They are similar in nature to airline frequent flyer programs.

Typically, such programs do not require you to show a membership card to get the rebates. Instead, you register your credit cards with them and they track the purchases you make at participating merchants using the cards. You can also earn rebates by shopping online through the company web sites. This makes the programs a painless way to earn a little extra money for college.

Affinity programs with a college savings emphasis include:

Upromise is probably the most widely used program.

… The Upromise credit card enables people to earn cash back for everyday purchases. With the credit card, members get 5% cash back on all purchases and 10% cash back when they buy things in the Upromise shopping portal, explains Condon. Members can have the cash earned deposited directly in a Upromise 529 college savings account, in a Sallie Mae savings account or request a check whenever they are ready to cash in.

Small amounts can add up.

The amount saved is a small percentage of the amount spent, but with the magic of compound interest, small amounts grow exponentially larger over the years. For instance, if you spend $1,500 a month for 30 years and receive 1 percent back on your purchases, you would have more than $18,000 if you averaged a 7 percent return per year.

“I wouldn’t use this as a substitute for having a good investment strategy, but it might be a substitute for having to transfer $100 to your investment account every month,” says financial adviser Will Ertel, president of Tassel Capital Management in Matthews, N.C. “It can be a way to supplement or create some savings you aren’t otherwise building.”

Cash generated by any rewards program can also be designated to pay for college costs.  It seems like a no-brainer,  unless you rely on credit card reward points to defray the cost of vacations or other purchases.

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Donna Fuscaldo, “Last-Minute College Savings Tips”, FOXBusiness, March 20, 2014.

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.

April 9, 2014

Want to appeal your college financial aid?  Go for it

by Grace

Ron Lieber in the New York Times has some tips for students hoping to appeal their college financial aid packages before making the final decision on where to enroll in the fall.

A change in a your financial situation holds the best chances for a successful appeal.

Your best shot with an appeal will come from a change in your family’s financial circumstances since you applied for aid. Possibilities include job loss or other reduction in income, new health expenses, death of a parent, disability of a family member, nursing home costs, natural disasters or parental credit woes that make borrowing impossible.

Adjusting need-based aid may be a more straightforward proposition, but that’s not always true since need-based awards are often based on a ‘student’s academic merit’.

Some tips:

Some schools automatically match offers from similar schools.

Cornell instantly corrects itself if you’ve got higher need-based aid offers from other Ivy League schools or M.I.T., Duke and Stanford; it will match that offer, no questions asked.

Carnegie Mellon appears to be acting similarly, noting on its site that the university has “been open about our willingness to review financial aid awards to compete with certain private institutions for students admitted under the regular decision plan.” …

Go for it.
Based on some feedback from colleges, Lieber seems to suggest that the odds are not bad that an appeal will result in increased aid.

The worst that can happen is that the financial aid office says no …

Related:  Will colleges negotiate financial aid packages? (Cost of College)

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)

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