Posts tagged ‘student loans’

July 18, 2012

Quick takes – single-sex classrooms, ‘gainful employment’ rule, War on Men in science, & more

by Grace

—  Single-sex classrooms are a trend:


—  The coming War on Men in science – applying Title IX to science  

Quotas limiting the number of male students in science may be imposed by the Education Department in 2013. The White House has promised that “new guidelines will also be issued to grant-receiving universities and colleges” spelling out “Title IX rules in the science, technology, engineering and math fields.” These guidelines will likely echo existing Title IX guidelines that restrict men’s percentage of intercollegiate athletes to their percentage in overall student bodies, thus reducing the overall number of intercollegiate athletes. (Under the three-part Title IX test created by the Education Department’s Office for Civil Rights, where I used to work, colleges are allowed to temporarily comply by increasing the number of female athletes rather than cutting the number of male athletes, but the only viable permanent way to comply with its rule is to restrict men’s participation relative to women’s participation, reducing overall participation.) Thus, as Charlotte Allen notes, the Obama administration’s guidelines are likely to lead to “science quotas” based on gender.


—  The “gainful employment” rule for career-training schools has been struck down in court, but it could be a “Pyrrhic victory for the for-profit colleges”.

A federal judge in Washington has overturned a main component of the federal Department of Education’s “gainful employment” rules, which were applied to career-training programs and were hotly contested by for-profit colleges, saying that regulation was arbitrary.


—   Grinnell College dean pulls back the curtain on college admissions

A window into what goes on during the reading of applications; among the insights:

I can remember very clearly last year talking about a student who I wasn’t particularly impressed with. I felt that the application was flat; the writing wasn’t compelling to me; the recommendations, while good, they weren’t powerful, they didn’t support the student’s admission.

… And then one of the other committee members made the argument and said, look, this child is from a single-parent home, they spend a lot of time helping to support a younger sibling, they don’t have as much time for the extracurricular activities. You could tell that the school didn’t really know the student, because the student couldn’t stay after and participate in a lot of activities. And I think seeing through a different lens to some degree, slowing down and really looking at the student on her own individual merits, that made all the difference.


—  The 13 Careers Where You’re Most Likely To Commit Suicide

Two of the careers listed:

Mathematicians and scientists are 1.85 times more likely to commit suicide than average…

Dentists are 5.45 times more likely to commit suicide than average


Related:  Public schools are not diverse enough for boys (Cost of College)

May 16, 2012

A roundup of pending federal college financial aid changes

by Grace

Some changes in federal financial aid for college students are coming soon.

Pending higher student loan interest rates are in limbo.  Unless Congress acts to delay this change, the interest rate for subsidized federal student loans will double to 6.8% in July.  Although both parties agree on keeping the lower rates, disagreement on how to pay for this benefit has stalled action on this issue.

In addition, the maximum eligibility period for Pell Grants will be cut from eight to six years starting with the 2012-13 school year.

More new developments in federal financial aid affecting high school graduates heading for college this fall:

  • If a student’s family income doesn’t exceed $23,000, their expected family contribution will automatically fall to zero — this has been reduced from the previous maximum income of $32,000.
  • To qualify for federal student aid, students applying in higher education for the first time must have either a high school diploma or a recognized equivalent such as a GED, or have been home schooled. This erases a previous option of passing an approved test or completing at least six credit hours or 225 clock hours of post-secondary education.
  • Direct subsidized loans will not be eligible for an interest subsidy during the six-month grace period after graduation, meaning interest will begin to accrue as soon as a student graduates or leaves college.
  • Graduate and professional students are no longer eligible to receive subsidized loans, but can qualify for up to $20,500 in unsubsidized loans each year.
  • The U.S. Department of Education can no longer offer borrowers repayment incentives, except interest rate reductions to borrowers who agree to have payments automatically electronically debited from their bank account.

Related:

May 1, 2012

Why the extra Stafford loan subsidy should expire as originally planned

by Grace

Both political parties want to extend indefinitely the “temporary” lower interest rate of federally subsidized Stafford loans, a move estimated to cost taxpayers $30 billion over five years.

The same President Obama who once pledged we were done “kicking the can” on tough decisions is pandering for the youth vote (on Jimmy Fallon, no less) by insisting we extend the largesse. Meanwhile, in a discouraging development, the same Mitt Romney who insists we have to slash spending and reverse course on Obama’s “government-centered society” quickly caved and joined Obama’s call to extend the break.

Politics is ugly to watch sometimes.

Frederick Hess makes some good points that bolster my view the government should let the extra subsidy expire.

The Stafford is a middle class entitlement. We’re not talking about Pell grants for poor students. We’re talking about whether students can get an even bigger subsidy on already-subsidized loans.

Everyone has an offset to “pay” for the extension. Newsflash: we’re borrowing a trillion bucks this year. None of this is paid for. Any cuts we find could trim that debt. We need all those cuts and to let the 3.4% rate expire.

We really need to stop suggesting that it’s okay renege on obligations when we decide we no longer like the terms of contracts we voluntarily signed. It’s been a meme the last few years, especially with Occupy Wall Street, and it makes it really hard to teach students to honor their obligations.

April 25, 2012

Federal Direct PLUS or home equity loan for college costs?

by Grace

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

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

April 23, 2012

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

by Grace

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.

April 17, 2012

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

by Grace

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

March 14, 2012

‘Higher Education Bubble May Explode in Taxpayers’ Faces’

by Grace

“61 percent of folks with a student loan are not paying,” notes Andrew Gillen, Ph.D., of the Center for College Affordability and Productivity. Many of the non-payers are still in school, but many others have long since graduated, but are failing to make payments on their student loans. “To give you sense of how unhealthy this is, consider that after the worst housing price crash in our history, 28% of mortgages were underwater.” In short, it looks like there is a huge higher education bubble about to explode in taxpayers’ faces.

Oh, goody.

Related:  46% of people under 30 have outstanding student loans averaging $23,000

March 7, 2012

46% of people under 30 have outstanding student loans averaging $23,000

by Grace

A report released this week by the Federal Reserve Bank of New York highlights the drag that student loans have placed on the economy and recalls the notion that this debt burden may be creating a generation of wage slavery.

Forty percent of the people under 30 had outstanding student loans, and the average outstanding debt is $23,300. About 10 percent of borrowers owe more than $54,000 and 3 percent owe more than $100,000.

After adjusting for the estimated number of individuals still in school or who otherwise qualified for payment deferral, the report found that 27% of student borrowers are delinquent in their payments.
… 


It’s probably not going to get better any time soon.

   In sum, student loan debt is not just a concern for the young. Parents and the federal government shoulder a substantial part of the postsecondary education bill. Moreover, the student loan delinquency picture is not fully captured in the broad statistics since a significant proportion of borrowers and balances are not yet in the repayment cycle. The implications of this last fact for future changes in the student loan delinquency rate are a very important area of research.

March 5, 2012

Student loans are a reason young people not buying homes

by Grace

Student loans are a reason many young people are not buying homes and “will be a drag on the economy for the foreseeable future”.

According to a recent Federal Reserve study, only 9 percent of 29- to 34-year-olds got a first-time mortgage from 2009 to 2011, compared with 17 percent 10 years earlier. “First-time home buyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly,” Fed Chairman Ben Bernanke said at a homebuilders’ conference in Orlando on Feb. 10.

Recent college graduates carry an average debt load of more than $25,000, limiting their ability to qualify for mortgages even if they’re able to land a job in a market with an unemployment rate of 9 percent for 25- to 34-year-olds. Dubbing it a “student loan debt bomb,” the National Association of Consumer Bankruptcy Attorneys (NACBA) warned on Feb. 7 about the effects of rising student debt on recent graduates, parents who co-signed their loans, and older Americans who’ve gone back to school for job training.

“Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said on a conference call.

A silver lining for rental construction, but will that be the next bubble?

Although housing prices have fallen by about one-third from their 2006 peak, young adults who are starting to move out of their parents’ houses want to rent, not buy. While single-family housing starts posted their worst year since 1963 last year, multifamily housing construction has surged as more Americans rent.

I would not urge most young people to buy a home today unless they find themselves in an unusually favorable situation.  It’s just too risky.

The NY Times has a nifty calculator that helps determine Is It Better to Buy or Rent?

Related:

January 2, 2012

No, no, no! – $200,000 in debt after a degree in communications

by Grace

It almost never makes sense to incur $200,000 in student loans so you can graduate with a master’s degree in communications.

In a story about young women dropping out of the work force to go to school, this anecdote about one student going for her master’s degree in strategic communications caught my eye.

“I was working part-time at Starbucks for a year and a half,” said Laura Baker, 24, who started a master’s program in strategic communications this fall at the University of Denver. “I wasn’t willing to just stay there. I had to do something.”…

… Including the loans that financed her undergraduate education at Wartburg College in Waverly, Iowa, she will complete her master’s program next year owing about $200,000 in debt.

“I have to have faith that I will eventually get a good job that pays enough to pay my living expenses and pay back my loans,” she said, “and hopefully make me happy in the process.”

To pay off a $200,000 student loan you need a $200,000 annual salary

According to this Georgetown University report on the economic value of college majors, the median salary of a worker with a master’s in communications is about $65,000.  Mind you, that average is for all levels of experience, so a new graduate just beginning her career should expect to earn less.  When Ms. Baker begins to pay down her $200,000 student loan after she graduates next year, her monthly payments can be expected to be about $1,775.  Here’s the cautionary language that accompanies the calculation results for that $200,000 loan amount at the FinAid loan calculation website.

It is estimated that you will need an annual salary of at least $213,044.40 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 0.9. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $142,029.60, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 1.4.

Bad news recap

  • When she graduates, the best case scenario will be a job paying about $65,000, which translates into an estimated monthly take-home of $4,165.
  • Monthly student loan payments will be $1,775, meaning 43% of her take-home pay will go towards her student loan.  This is considered a financially risky profile.
  • Of course, this doesn’t take into account any other debt a new employee typically incurs, such as a car loan or credit cards.  And she should forget about qualifying for a mortgage until she’s in her forties.

I expect Ms. Baker plans to defray some of her loan payment expenses by taking advantage of the Public Service Loan Forgiveness (PSLF) or the Income-Based Repayment (IBR) federal programs.  But given the size of her debt, it’s likely the bulk of her loan obligations would remain intact.

If she were my daughter, I probably would have counseled her to stay at Starbucks for a while longer.

Marriage ‘penalty’ – Another thought comes to mind.  I would be quite concerned if my son were contemplating marriage to someone who owed $200,000 in student loans and whose main marketable achievement was a degree in communications.

Is this young lady another “Occupy” protestor in the making?

$200,000 in student loans - today's communications major may be tomorrow's 'Occupier'

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