Number of employed high schoolers at lowest level in more than 20 years

The American job market is no place for students as the number of employed high schoolers has hit its lowest level in more than 20 years, according to new figures from the National Center for Education Statistics.

In 1990, 32 percent of high school students held jobs, versus just 16 percent now. Blame their elders.

Sectors that traditionally have offered teens their first paying gig — fast-food chains, movie theaters, malls and big-box retailers — have now become the last resorts for out-of-work college graduates or older Americans forced back into the labor force out of sheer financial necessity. The resulting squeeze has left students on the outside looking in.

The recession and an increasing focus on school can be blamed for the high teen unemployment rate.  It’s important to make good grades a priority, but lack of work experience can make it harder to find a job after college graduation.

In the long run, the trend could produce more and more young adults who lack the basic skills, such as how to interact with a customer, gained while working early in life. The longer a young person goes without a job, Mr. Sum said, the less attractive he or she looks to employers.

“There’s only one way you can learn how to work — you’ve got to work,” he said.

Related:  College grads need ‘real-world’ skills before they can get ‘real’ jobs

The student loan problem: ‘I’m not going to worry about it right now. I had to take that plunge.’

SOME HIGHLIGHTS FROM THE NEW YORK TIMES FRONT PAGE ARTICLE ON STUDENT LOANS

Statistics show it’s a growing problem, but not a crisis.

* About two-thirds of bachelor’s degree recipients borrow money to attend college, either from the government or private lenders, according to a Department of Education survey of 2007-8 graduates; the total number of borrowers is most likely higher since the survey does not track borrowing from family members.

By contrast, 45 percent of 1992-93 graduates borrowed money; that survey included family borrowing as well as government and private loans.

For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000, the Federal Reserve Bank of New York reports….

Students and their families are often clueless, failing to consider the ramifications of their actions.

Even discounted, the price is beyond the means of many. Yet too often, students and their parents listen without question…

Many students and parents don’t have a firm understanding of the cost of attending college, or the amount of debt they will incur….

“Ultimately with everything in financial aid, from start to finish, the student and their family need to take responsibility and monitor their aid,” Melanie K. Weaver, the director of financial aid at Ohio Northern, said in an e-mail. “With over 3,000 on aid it is difficult for our office of 10 staff members to stay on top of every student.”…

“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” said Ms. Griffith, a marketing major. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”…

Ms. Potter figured she would have to borrow about $10,000 a year. But the tuition increased every year, and because she didn’t declare a major until her junior year, she needed five years to graduate.

A social worker, she now owes $80,000…..

“Maybe at the time I was a little naïve,” said Mr. Frank, 22, a senior who owes $80,000. “Everyone was like, ‘You can get grants, you can always get loans.’ I wanted to play football really bad, and I hoped eventually I’d get a football scholarship.”…

“I didn’t quite think in terms of money”…

“I kind of ignored the fact that I had to pay all these loans”…

An opaque pricing and financial aid system adds to the problem.

Instead, college pricing is complicated by constant tuition increases, a vast array of grants and loans and a financial-aid system that discounts tuition for most students based on opaque formulas. “No one has a vested interest in simplifying the process but families,” said Mark Kantrowitz, the founder of FinAid, a Web site devoted to explaining college financial aid. “It obscures the price of a college and makes the choice of college not depend on the price but other factors.”

Factors contributing to the growth in student loans

… as with the housing bubble before the economic collapse, the extraordinary growth in student loans has caught many by surprise. But its roots are in fact deep, and the cast of contributing characters — including college marketing officers, state lawmakers wielding a budget ax and wide-eyed students and families — has been enabled by a basic economic dynamic: an insatiable demand for a college education, at almost any price, and plenty of easy-to-secure loans, primarily from the federal government.

Until recently, college administrators might have ignored the problem.

“I readily admit it,” said E. Gordon Gee, the president of Ohio State University, who has also served as president of Vanderbilt and Brown, among others. “I didn’t think a lot about costs. I do not think we have given significant thought to the impact of college costs on families.”

The goal of “college for all” means more taxpayer funds for student loans

To that end, the Obama administration has given out more grants and loans than ever to more and more college students with the goal of making the United States first among developed nations in college completion. The balance of federal student loans has grown by more than 60 percent in the last five years. And in 2007, Congress made sure the interest rates on many of those loans were well below commercial rates; currently, a debate over keeping those lower rates from doubling in July is roiling lawmakers.

While the student loan problem is not a crisis, it is a drag on the economy.

Economists do not predict a collapse of the student loan system, which would, in essence, mean wholesale default. And if there were one, it would be unlikely to ripple through the economy with the same devastating impact as the mortgage crash. Though now larger than credit card and other consumer debt, the student loan balance remains smaller than the mortgage market, and most student loans are issued by the federal government, meaning banks wouldn’t be affected as much.

Still, economists say, growing student debt hangs over the economic recovery like a dark cloud for a generation of college graduates and indebted dropouts. A study of recent college graduates conducted by researchers at Rutgers University and released last week found that 40 percent of the participants had delayed making a major purchase, like a home or car, because of college debt, while slightly more than a quarter had put off continuing their education or had moved in with relatives to save money….

State government spending on higher education has increased, but not as much as in other areas.

In the late 1970s, higher education in Ohio accounted for 17 percent of the state’s expenditures. Now it is 11 percent. By contrast, prisons were 4 percent of the state’s budget in the late 1970s; now they account for 8 percent. Federal mandates and court orders have compelled lawmakers to spend more money on Medicaid and primary education, too. Legislators could designate a greater percentage of the budget to higher education by raising taxes, but there is no appetite for that….

Colleges aggressively market themselves as affordable.

Colleges are aggressively recruiting students, regardless of their financial circumstances. In admissions offices across the country, professional marketing companies and talented alumni are being enlisted to devise catchy slogans, build enticing Web sites — and essentially outpitch the competition.

Affordability, or at least promising that the finances will work out, is increasingly a piece of the pitch.

After all, colleges are not in the business of turning away students.

… And most colleges aren’t much help. Student debt is not their primary concern in the end — the loan money usually gets deposited directly with the colleges, so they get paid either way — and the main job of the admissions staff, after all, is to admit students.

One recommendation:  a standardized form

While there are standardized disclosure forms for buying a car or a house or even signing up for a credit card, no such thing exists for colleges.

For-profit schools are a particular problem, but keep in mind they serve more disadvantaged students.

… Students at for-profit colleges are twice as likely as other students to default on their student loans. Moreover, among students seeking a bachelor’s degree, only 22 percent succeed within six years, compared with 65 percent at nonprofit private schools and 55 percent at public institutions. (For-profit students, however, tend to do better at obtaining associate degrees and certificates.)

Leaders of the for-profit industry defended themselves, saying they were providing higher education for lower-class students that traditional colleges had left behind. “The reality is the type of students we attract have no other opportunity,” said Steven Gunderson, head of a leading trade organization. “We are the ones that provide a path to the middle class.”

It ultimately comes down to the students’ responsibility.

But even with more information, students and their parents seem willing to pay the ever-escalating price of a college degree, which remains the key rung up the ladder of economic mobility.

Denise Entingh, 44, dropped out after two quarters at Columbus State Community College because she didn’t want to wait any longer to get into the nursing program. So she signed on at the Hondros School of Nursing, a for-profit college that advertises “No Waitlist!” on a billboard a few blocks from Columbus State.

Ms. Entingh said she expected to borrow about $45,000 to get a bachelor’s degree in nursing from Hondros, which costs more than three times as much as Columbus State.

“It scares the hell out of me,” she said of her debt load. “But I think it will be all right. I’m not going to worry about it right now. I had to take that plunge.”

…
Whew!  After all that, I may not want to write anything else about student loans for the next six months!
(But I probably will.)

* CORRECTION:  The original article misstated the percentage of students who had borrowed as 94%.

Related articles

• Still paying down student loans when you’re middle aged or older (costofcollege.wordpress.com)

Burned by college net price calculator estimates

Price calculators were supposed to make estimating the cost of going to college easier. But some families are feeling burned by them….

Net price calculators (NPC) became a mandated tool on all college websites last fall, but the Wall Street Journal reports that some estimates have turned out to be inconsistent with the actual costs families learned about this spring.  There can be several reasons for the inaccuracies, including errors in entering data, changed personal circumstances, outdated college costs, and flawed calculator design.

Families should understand that the NPC estimates can be a useful first step in comparing affordability among various institutions, but should not be relied upon for total accuracy.  It’s important to review the final report carefully for questionable results, such as the example where an NPC produced an ”estimated out-of-pocket cost” of $0 while also including loans amounting to more than $20,000.  Contact the college when you discover questionable numbers like this.

Some tips on interpreting NPC resuls from The Institute for College Access & Success:

• Be wary of estimates that include unrealistic amounts of self-help. We have found calculators that subtract $20,000 or $30,000 worth of expected loans to get to what might be called a “final” or “out of pocket” cost figure of zero. This can make colleges look more affordable than they really are. It may look like you will have no out-of-pocket costs, but the costs are just delayed.
• The results are only estimates and colleges can calculate them differently, so use them to make ballpark comparisons between colleges. Don’t draw conclusions based on differences of several dollars or even several hundreds of dollars – talk to the schools’ financial aid offices to find out more.
• The estimates are only for your first year of college and apply to a particular academic year (e.g., 2011-12). If you expect to enter college at a later date, know that the college’s costs and financial aid policies may change.
• Not all grants and scholarships are available for all years of college. You can contact the college’s financial aid office (or try searching its website) to find out whether you can expect the same amount of grant assistance after your first year.
• As all net price calculators are required to tell you, the estimates are not final or binding financial aid awards. To get an actual aid offer, you have to apply to the school for admission and fill out the FAFSA (Free Application for Federal Student Aid, http://www.fafsa.ed.gov/) to qualify for federal financial aid, and you may have to fill other applications for aid from your state or college. Net price calculators can help you decide whether to take those next steps.

Outside scholarships may cancel out financial aid given by your college

Do not assume that an outside scholarship will reduce your out-of-pocket college expenses.  This cautionary note comes from SmartMoney‘s 10 Things Financial Aid Offices Won’t Say.

“Outside scholarships help us, not you.”

Sure, you’re proud of the five scholarships your high school senior won from community groups and a local church, but don’t be relieved just yet. Unless you weren’t counting on any financial aid at all, those scholarships might not make a dent in the total amount you’ll owe. Why? Federal guidelines mandate that outside scholarship money be considered a resource in meeting financial need. This means you can’t use the scholarship dollars toward your expected family contribution, and the college can reduce the amount of aid coming your way. “Many parents mistakenly think their cost will be diminished and then are disappointed to learn that it will actually be the grant from the school that is diminished, thus saving the college money and not the family,” says Parnell Hagerman, associate head at the Oldfields School in Glencoe, Md.

But applying for outside awards can help students if they re looking at a financial aid package that features more loans than grants. Ask your college if it can reduce the loans first, says Patty Hoban, aid director at Willamette University in Salem, Ore. In that case, a few scholarships could still save thousands of dollars in interest. Secondly, it can reduce work-study, which is need-based.

Always check with the individual school.  It can be confusing because colleges vary in exactly how they treat outside scholarships.

Most schools have favorable policies that first apply the outside scholarship to unmet need, and then reduce self-help (loans and work-study) before touching institutional grants.

Go to the FinAid article on Outside Scholarship Policies for more details.

CollegeConfidential discussions include parents sharing their stories about how financial aid packages were affected by outside scholarships:
…Merit aid cancels out need-based aid
…Outside awards and structure of aid package

Federal Direct PLUS or home equity loan for college costs?

If you will be borrowing to pay for part of your child’s college costs, is it better to take out a federal Direct PLUS parent loan or a home equity loan?

Of course, there’s no single right answer for everyone because each option offers some advantages.  You should only consider a home equity loan if you have plenty of equity in your home.  Also remember that the window for taking out a PLUS student loan closes when your child finishes college but there is no similar time constraint on a home equity loan.  Here are a few points to keep in mind when deciding which is better for you.

Direct PLUS student loan

• Fixed interest rate of 7.9%
• Keeps home equity available for other borrowing needs
• Automatically insured against death and disability
• Interest may be tax deductible depending on income level
• No collateral needed
• Payments may be deferred until after student graduates
• Eligible for Public Service Loan Forgiveness (PSLF) and Income-Based Repayment Plan (IBRP)
• High (4%) loan origination fee
• Harsh default penalties – not dischargeable in bankruptcy and wages can be garnished without court order

Home equity loan or line of credit (HELOC)

• Lower interest rate, but HELOCs typically have high rate caps
• Interest may be tax deductible, with some limitations and exceptions (deduction not allowed when using AMT method)
• May be discharged in bankruptcy
• Ties up home equity, making it unavailable for other borrowing needs
• Risk of creating negative equity in home, limiting options to move and causing other problems.
• Default puts home at risk for foreclosure

More information at these links:
The Federal PLUS Loan vs. Home Equity Loans
Federal Plus Loan vs. Home Equity Loan

Stricter Pell Grant rules raise standards for ‘satisfactory academic progress’

Under the new rules, students lose their eligibility for aid such as Pell Grants if they’re on academic probation for more than one semester and do not file a successful appeal. The previous limit was two semesters. This is on top of the existing SAP requirements: a cumulative GPA of at least 2.0, successful completion of a certain percent (usually 67 percent) of classes attempted, and completion of no more than 150 of the number of hours required for a credential.

This seems fair.   (Until it’s my child who’s failing . . .)

These standards also apply to other types of federal financial aid.
… 

New Pell rules cut off failing students

Federal Student Aid:  Satisfactory Academic Progress (SAP)

Political battle looms over doubling of student loan interest rate to 6.8%

President Obama begins an all-out push on Friday to get Congress to extend the low interest rate on federal student loans, White House officials said, an effort that is likely to become a heated battle along party lines. If Congress fails to act, the interest rate on the loans, which are taken out by nearly eight million students each year, will double on July 1, to 6.8 percent….

With student debt at a record high of $1 trillion, the effects of this change would be widespread.  The debate becomes about who should pay, the borrowers or the taxpayers?

The Congressional Budget Office has estimated that a one-year freeze on the interest rate for subsidized Stafford loans would cost $6 billion.

The history

The low interest rate stemmed from the 2007 College Cost Reduction and Access Act, which reduced interest rates on subsidized Stafford loans over the following four academic years — from 6.8 percent to the current 3.4 percent — with the proviso that the rates would revert to 6.8 percent this July…

A political trap for Republicans and a win-win situation for President Obama

The pre-planned doubling forces GOP politicians to either approve a Democratic measure that extends the low interest rates, or else face protest from millions of students and their middle-class parents.

Many GOP legislators dislike the subsidized interest rate because it inflates education costs while delivering a disguised subsidy to the Democrats’ political allies in the education industry.

The trap “kinda makes sense,” said Mark Kantrowitz, publisher of Finaid.org, a financial aid website.

“It’s a ‘Heads I win, tails you lose,’ scenario, where if President Obama succeeds in getting it extended a for a year he gets a victory for a key segment of the voters [and] if it gets blocked, he can blame his opponents for blocking it.”

“Either way he wins,“ Kantrowitz said.

Mr. Courtney said he was hopeful that some Republican support would be forthcoming as the political stakes became more apparent.

If higher loan subsidies are approved, the poorest students could come out losing.

Outside Congress, even some of the strongest student-aid advocates debate the question. While nearly everyone is in favor of the broad goal of college affordability, some experts point out that even 6.8 percent is lower than the rate on most private student loans. And they question whether it is worth risking cutbacks in the Pell program for low-income students, one possible consequence of using more federal money to keep interest rates low on the Stafford loans, which are in wide use by middle-income students.

Why you want to choose the right college in the first place

The pressure is on for high school seniors to choose a college by May 1.  They need to think carefully about their choices because transferring schools during your college years will likely cost you in time and money.

Nearly one in three undergraduates who begin studying at a two- or four-year college will move on to at least one other institution in pursuit of a degree. That means, for one reason or another, a large share of students end up navigating the admissions process twice (if not several times), reorienting themselves to new campuses and negotiating the transfer and acceptance of their old credits.

…
It can be costly

The research on these trends, while extensive, ultimately boils down to this: those who attend only one institution graduate in less time than those who attend several (and, in graduating quicker, pay tuition for fewer semesters).

Lionel Anderson gives advice to high school seniors on selecting the right college, focusing on these five factors.

1. Affordability
2. Size
3. Academic Support
4. Student Life
5. Diversity

Still paying down student loans when you’re middle aged or older

Still paying on student loans when you’re middle aged or older can certainly dim the outlook for a financially secure retirement.

Student loan debt amassed by parents is growing faster than loans taken out by the student.

Parents’ loan debt has more than doubled over the last decade — exceeding $100 billion dollars or 10 percent of all outstanding student loan debt, according to the independent research firm FinAid.org.

“Parents of every income level are increasingly borrowing for their children’s college education. It doesn’t matter whether the parents are low income, middle income or upper income. There’s been dramatic growth in the percentages of parents who’ve been borrowing,” says FinAid.org founder and publisher Mark Kantrowitz.

Many parents who co-signed loans or borrowed money on their own for their children’s education now face the loss of their retirement nest eggs, homes and other assets….

Parents have an average of about $34,000 in student loans and that figure rises to $50,000, including interest, over a standard 10-year loan repayment period.

Aging Americans 60 and older owe about $36 billion in student loans.

Some of these older Americans are still grappling with their first wave of student loans, while others took on new debt when they returned to school later in life in hopes of becoming more competitive in the labor force. Many have co-signed for loans with their children or grandchildren to help them afford ballooning tuition.

It’s probably best to avoid the twenty-year plan for paying student loans.
I recently read where a 40-something mom explained that since she and her husband were still paying down their student loans, saving for retirement and for her children’s college education had taken a back seat.

11.8 million borrowers aged 40 and older owe $278 billion in student loans, averaging almost $24,000 per debtor.

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It’s relatively easy for a parent to qualify for a student loan:  Qualifying for a parent Direct PLUS loan

A new tool for comparing college financial aid award letters

If you’re at the point where you have several college acceptances in hand accompanied by financial aid award letters, what is the best way to compare the bottom-line net cost of attending?

A new tool for comparing college financial aid award letters was recently introduced by the Consumer Financial Protection Bureau.

For each school you select, the “Sticker Price” first-year Cost of Attendance (COA) that includes average tuition & fees, room & board, books & supplies, and other expenses,  is provided.  Then you can enter the actual financial aid amounts from your award letters to see your personalized net costs.  The worksheet allows you to compare up to three schools at one time.

Here’s an example of a worksheet.  (Click on image to enlarge.)

…
Keep in mind there are only three types of financial aid, as explained by Kalman A. Chany, author of “Paying for College Without Going Broke”

While the descriptions of the various aid programs will vary tremendously from college to college, there are really only three categories of assistance that will be in the award letter: gift aid (grants and/or scholarships), work-study job opportunities, and loans.

Be careful because the terminology can be confusing.

Sometimes the terms are confusing. Even the word “scholarship” can mean different things. Traditionally, a scholarship is based on merit; grants are based on need. Some schools, however, change the name of grants to scholarships to make you feel better about the award. Ask each college if the gift aid you have been offered is based on merit, need or a combination to determine the likelihood of getting such assistance in later years. Need-based aid is likely to vary from year to year, especially if a family does something to harm its chances of eligibility.

Even with the ever-increasing tools as well as the many sources of advice and facts, figuring out the college financial aid landscape for your own child can be a minefield of misinformation.

You can try using the new tool here:  Paying for College Cost Comparison Worksheet

Related:  When is an ‘award’ really a loan?