Archive for October, 2013

October 31, 2013

Scary student loans

by Grace


Student debt levels surge to frightening levels.

Student Loan Defaults Surge To Highest Level In Nearly 2 Decades

Recent college students are defaulting on federal loans at the highest rate in nearly two decades, reflecting “crisis” levels of student debt and a lackluster economy that leaves graduates with bleak employment prospects.

One in 10 recent borrowers defaulted on their federal student loans within the first two years, the highest default rate since 1995, according to annual figures made public Monday by the Department of Education.

A separate gauge, measuring defaults occurring within the first three years of required payments, showed that more than one in seven borrowers with federal student loans went into default, an event that can trigger invasive debt-collection methods that include fees, wage garnishments, and withheld IRS tax refunds.

“The growing number of students who have defaulted on their federal student loans is troubling,” Education Secretary Arne Duncan said. Duncan said the department will work to “ensure that student debt is affordable.”

Taxpayers hand out “treats” to struggling borrowers in the form of debt-relief programs, but many who have defaulted may be unaware of these bail-out options.

To ensure that students are aware of the flexible income-driven loan repayment options available through Federal Student Aid (FSA), this fall the Department will expand its outreach efforts to struggling borrowers to inform them about the different plans. The Department has also released new loan counseling tools to help students and families make more informed decisions about planning for college. Students and families can visit for more information.

Happy Halloween!


October 30, 2013

‘Means-Tested Gov’t Benefit Recipients Outnumber Full-Time Year-Round Workers’

by Grace

Are there enough workers to maintain growing levels of government benefits?

Census Bureau: Means-Tested Gov’t Benefit Recipients Outnumber Full-Time Year-Round Workers

… Americans who were recipients of means-tested government benefits in 2011 outnumbered year-round full-time workers, according to data released this month by the Census Bureau….

There were 108,592,000 people in the United States in the fourth quarter of 2011 who were recipients of one or more means-tested government benefit programs, the Census Bureau said in data released this week. Meanwhile, according to the Census Bureau, there were 101,716,000 people who worked full-time year round in 2011. That included both private-sector and government workers.

That means there were about 1.07 people getting some form of means-tested government benefit for every 1 person working full-time year round.

It’s hard to see how this can continue.

Adding in the recipients of non-means-tested government programs paints a more detailed picture on the strain government programs place on workers.

When the people who received non-means-tested government benefits from programs such as Social Security, Medicare, unemployment and non-means-tested veterans compensation are added to those who received means-tested government programs such as food stamps, Supplemental Security Income and public housing, the total number of people receiving government benefits from one or more programs in the United States in 2011 climbs to 151,014,000, according to the Census Bureau.

The jobs picture does not offer much hope.


… Nearly 5 years after peak employment occurred in the United States, we are still 2% below levels recorded prior to the recession. 62 months is a staggering number, when one considers that the next closest percent job loss total occurred in the 2001 recession (47 months). In simple terms, never before has it taken the United States economy this long to show 0% job losses after a recession.

Equally unsettling is that at the current anemic rate of job creation that is occurring in the United States, it may be years, not months, before the red line tracking this job loss percentage crosses 0%.

The increase in involuntary part-time workers is a two-fold problem, shrinking tax revenue and amplifying the need for government benefits.


A turnaround may be dependent on the recovery of the country’s “collective confidence”.

In his commentary on the topic, United Capital Funding Corp. Managing Partner Mark Mandula admits “it is difficult to remain optimistic”. But he believes our country “remains the ‘North Star’ of all of the economies in the world”, with no lack of “initiative, a qualified work force or energy”.  He thinks the country needs is a restoration of its “collective confidence” before we will see the return of economic prosperity.

Or a turnaround may only happen when we finally run out of other people’s money.


October 29, 2013

Can young college graduates burdened by student loans be convinced to buy health insurance?

by Grace

Young college graduates saddled with student loan debt may find it difficult to comply with new Obamacare mandates.

The success of Obamacare depends on young people buying health insurance.

Experts say that young, healthy people must enroll in ObamaCare’s health exchanges to cover the cost of insuring sicker, older people. It’s a simple math equation: Charge everyone roughly the same rate for access to basically the same product. The people who use it less will subsidize the people who use it more.

It may be hard to convince young adults to buy insurance, as illustrated by the example of Ron Geibel, a young college graduate recently profiled by  Geibel is considering his options among the New York state health plan marketplace created as part f the Affordable Care Act..

Profile:  Ron Geibel is a 28 year-old artist living in White Plains, New York.

  • Currently has no insurance
  • Income is less than $25,000 a year
  • In good health
  • Student loan has been deferred, but requirement to start paying will soon kick in

Geibel can choose from among seven plans with varying options.

Cost: A bronze plan from Health Republic is $307 a month ($3,000 deductible, pays 60 percent), but Geibel would pay $55. A silver plan from the same company is $387 a month ($2,000 deductible, pays 70 percent); Geibel would pay $135. A catastrophic plan would cost $186 to $418 a month, with a $6,350 deductible. The maximum out-of-pocket he would pay per year is $6,350 for the bronze or catastrophic plan; $5,500 for the silver.

Assuming a student loan balance of $26,600, the average for 2011 graduates, Geibel’s monthly payments would be $306*.  Here’s a hypothetical illustrations of his overall monthly income and expenses if he were to choose the silver plan.


The illustration shows a very tight budget, with little room for “extras” like health insurance.  Here’s how this young college graduate puts it.

“So for me if I have to prioritize right now it’s feeding myself and living as opposed to worrying about the health insurance.”

Like many young people, he thinks his odds are good enough to run the risk of foregoing health insurance.  The ACA penalty in this case would be $250, so his annual net savings for not buying insurance would be $1370 if he does not get sick.

New York is one of five states where health insurance premiums for millennials are not expected rise, so Geibel might be considered lucky in that respect.  For residents of the other 45 states and for many who do not want the type of coverage mandated by the ACA, it remains to be seen if enough young people will sign up for the new policies.

* Payments will be less if borrower qualifies for the IBR.

Related:  It’s not always possible to avoid college debt, but try anyway (Cost of College)

October 28, 2013

Make sure extra payments on your student loan are allocated correctly

by Grace

Apparently many student loan borrowers are having their extra principal payments allocated improperly.

Difficulties in having payments properly applied to a loan balance are among the most common complaints the Consumer Financial Protection Bureau receives about student loans, according to the bureau’s second annual report on the topic.

Paying extra toward the principal is a common way to save on accrued interest and to shorten the life of a loan.  But without explicit instructions, extra amounts may be allocated incorrectly.

Borrowers sending in extra payments, however, may find that the money is not allocated in the way they intended. Sometimes, borrowers told the bureau, they received a notice putting them into “paid ahead” or “advanced payment” status.

Complicating the problem is the fact that borrowers typically have several loans, with different balances and interest rates, which are bundled together in one “billing group” with a servicer, who collects a single payment and applies it to the individual loans. Just how much benefit a borrower gets from the extra payment depends on how the servicer applies the money. Savings will generally be greater, for instance, if the entire extra payment is applied to the loan with the highest interest rate, rather than being prorated to each loan individually.

The difference in savings can be substantial, as shown in this example where a borrower makes an extra $100 payment every month over the life of her loans.


What should a borrower do?

Here are some questions to consider when making extra payments to reduce your student loan balance:

■ Is there any penalty to prepaying my student loans?

No. Private lenders are barred from penalizing students who make extra payments or pay off their loans early. (Federal loans do not have prepayment penalties either, Mr. Chopra said,)

■ How can I make sure my extra payment is allocated properly?

Send written instructions to your servicer; otherwise, the servicer may choose how to allocate the extra money. The bureau created a sample instruction letter, directing the servicer to apply extra payments to the loan with the highest interest rate first, which is generally the best option for most borrowers.

When I send in extra money on my mortgage payment, it automatically goes to pay down principal and is never counted as an “advanced payment” on next month’s bill.  I thought that was standard practice, but apparently not.

Pauline Abernathy, vice president of the nonprofit Institute for College Access and Success, said the report suggested there should be a uniform policy, outlining the way payments were applied. “Why force the borrower to specify?” she said.


October 25, 2013

‘passively managed index funds outperform almost all actively managed funds’

by Grace

Economics professor Mark J. Perry shared some investment facts on the occasion of “Eugene Fama winning the Nobel Prize of Economics, largely for his path-breaking academic finance research on market efficiency that ultimately led to the introduction of low-cost mutual funds by Vanguard and others that pursue a passive investment strategy of buying and holding portfolios of stocks that track an index like the S&P 500”.

Here’s one fact that should get every investor’s attention.

Empirical evidence shows that passively managed index funds outperform almost all actively managed funds over long holding periods, adjusted for risk, taxes and expenses.

I used to work for a mutual fund company with a winning fund manager who consistently outperformed the market over more than 30 years, but he was the exception.  These days I’m a fan of index funds for most of my investing.



October 24, 2013

The best study techniques are ‘practice testing’ and ‘distributed practice’

by Grace

The most effective study strategies–practice testing and distributed practice–are not sufficiently taught or emphasized by teachers.  That is the conclusion reached by John Dunlosky of Kent State University, who lead a team of researchers that included Daniel Willingham in reviewing the efficacy of various learning strategies.

Part of the problem lies with schools of education, where “teacher preparation typically does not emphasize the importance of teaching students to use effective learning strategies”.  This seems ironic, considering how fervently educators promote “lifelong learning” as a 21st century skill.


Details about the two most effective study techniques:

1. Practice testing: self-testing or taking practice tests on to-be-learned material.

Students and teachers can use practice testing in several ways.

… First, student learning can benefit from almost any kind of practice test, whether it involves completing a short essay where students need to retrieve content from memory or answering questions in a multiple-choice format. Research suggests, however, that students will benefit most from tests that require recall from memory, and not from tests that merely ask them to recognize the correct answer….

Second, students should be encouraged to take notes in a manner that will foster practice tests. For instance, as they read a chapter in their textbook, they should be encouraged to make flashcards, with the key term on one side and the correct answer on the other. When taking notes in class, teachers should encourage students to leave room on each page (or on the back pages of notes) for practice tests….

Third, and perhaps most important, students should continue testing themselves, with feedback, until they correctly recall each concept at least once from memory. For flashcards, if they correctly recall an answer, they can pull the card from the stack; if they do not recall it correctly, they should place it at the back of the stack. For notes, they should try to recall all of the important ideas and concepts from memory, and then go back through their notes once again and attempt to correctly recall anything they did not get right during their first pass….

Not only can students benefit from using practice tests when studying alone, but teachers can give practice tests in the classroom….

I notice that some local high school math teachers don’t give quizzes or grade homework, both of which would help student learning and serve as valuable formative assessment by providing feedback that could improve instruction.

2.  Distributed practice: implementing a schedule of practice that spreads out study activities over time.

Students use this method naturally in other endeavors such as sports or music.

… In these and many other cases, students realize that more practice or play during a current session will not help much, and they may even see their performance weaken near the end of a session, so, of course, they take a break and return to the activity later. However, for whatever reason, students don’t typically use distributed practice as they work toward mastering course content.

What teachers can do:

To use distributed practice successfully, teachers should focus on helping students map out how many study sessions they will need before an exam, when those sessions should take place (such as which evenings of the week), and what they should practice during each session. For any given class, two short study blocks per week may be enough to begin studying new material and to restudy previously covered material…..

Teachers can also use distributed practice in the classroom. The idea is to return to the most important material and concepts repeatedly across class days. For instance, if weekly quizzes are already being administered, a teacher could easily include content that repeats across quizzes so students will relearn some concepts in a distributed manner. Repeating key points across lectures not only highlights the importance of the content but also gives students distributed practice….

I’m a little surprised that summarization is not a very effective study technique.  While it might seem to be a form of practice testing, in reality it only helps “with training how to summarize”.

October 23, 2013

Ten questions to ask about college financial aid

by Grace

Questions to Ask College Financial Aid Administrators

From Fastweb’s Quick Reference Guide to Evaluating Financial Aid Award Letters:

The following questions can have a significant impact on college costs, especially the out-of-pocket cost, and on evaluating the financial aid award letter.

  1. Does the college meet the full demonstrated financial need for all four years, or is there unmet need (a gap)?
  2. How much on average do the college costs increase per year?
  3. Does the college practice front-loading of grants? Can students expect to receive a similar amount of grants in subsequent years, assuming their financial circumstances are similar? If the college practices front-loading of grants, how much will the grants change each year?
  4. What is the college’s outside scholarship policy? How does the college reduce the need-based financial aid package when a student wins a private scholarship? Does the scholarship reduce the loan and work burden (and unmet need, if any) or does it replace the college’s grants and scholarships?
  5. What are the residency requirements for in-state public college tuition?
  6. How many hours will I need to work to earn the full work-study award I’ve been offered? How much will I be paid per hour? Are work-study jobs readily available, or are they hard to get?
  7. What are the requirements for keeping my grants and scholarships in future years? Do I need to maintain a minimum grade point average? Do I need to take a particular number of units? Do I need to participate in any special activities such as community service?
  8. How does one appeal for more financial aid if the financial aid award is insufficient or the family’s financial circumstances have changed?
  9. What percentage of first-time, full-time students graduate within a normal timeframe? How many years, on average, does it take to earn the degree?
  10. What percentage of students graduate with debt and what is the average cumulative debt at graduation?

These questions highlight some of the most critical issues that should be considered in determining how the net cost of college will be affected by financial aid.

Here’s a suggestion on how a family can proceed with educating themselves about a particular college’s costs.

  1. Run a school’s Net Price Calculator using the family’s specific financial information.
  2. Review the school website to find answers to the ten questions listed above.
  3. Contact the school’s financial aid administrator to get answers not found on the website.

Going through this process will uncover key financial information, providing a good sense of that school’s affordability.


October 22, 2013

How much do you know about the Income Based Repayment Plan?

by Grace

Take a quiz on the Income Based Repayment Plan.

First, a basic definition:

Income-Based Repayment Plan (IBR)
“… a repayment plan for the major types of federal student loans that caps your required monthly payment at an amount intended to be affordable based on your income and family size.”

Take the quiz at the National Association for College Admission Counseling website.

It’s a short quiz.  I got all the answers right, but I have to admit I guessed on one question.  Apparently I need to read up on the Pay as You Earn Repayment Plan.


October 21, 2013

Even with a full scholarship there’s no free lunch

by Grace

Even college students awarded a full scholarship sometimes get socked with thousands of dollars in bills.

In reality, a full college scholarship does not usually cover the full cost of attendance.  Most schools require a student to contribute at least a few thousand dollars, either from employment income or from a loan.

Colleges usually require a “minimum student contribution” when calculating financial aid.  They want students to have some skin in the game.

… This payment is often referred to as a “minimum student contribution,” which is a flat payment typically between $1,500 and $4,000 a year. The dollar amount is usually the cheapest for freshmen and the most expensive for seniors. Some schools refer to it as a “summer earnings expectation,” saying that they expect their students to work during the summer and to contribute a certain dollar amount from that income to their education costs….

… schools are encouraged to charge students. For years, the College Board has suggested a minimum student contribution, and specified a recommended dollar amount — currently $1,800 for first-year students and $2,450 for dependent upperclassmen—for many colleges to charge….

Outside scholarships are not usually allowed to replace the student contribution.

When a student gets private scholarships—from a corporation or community group, say—some schools will actually scale back their own aid offering. In other cases, even when aid is enough to cover every penny of financial need, some schools require students to still pay a portion of the college bill out of their own pockets….

Harsh impact on low-income students who are awarded full-need financial aid

The policy is a major hardship for students who can barely earn this amount or who don’t have family to help them cover this cost. When students cannot pay, many colleges suggest they sign up for student loans.

Critics say the policy also underscores how the system is stacked against poorer students: Most colleges will accept a check from any other external source, like a student’s wealthy uncle, for this required payment, but they will not allow a private scholarship to pay this bill, even though the end result for the schools is that they still get paid the same amount. For some students who receive scholarships through the UNCF’s Gates Millennium Scholars program, these contribution requirements equal 5% to 22% of their families’ annual income, says Larry Griffith, senior vice president at the UNCF.

Low-income students may scramble to pay the required student contribution.

Beatriz Barros, a freshman at Cornell, thought her family would only be required to pay $1,400 for her college bills, which was the EFC figure the federal government had determined. But shortly before the school year began, Barros says, Cornell sent her a bill, which showed that her family would be required to pay $5,500 for the year and she would have to pay a separate $2,600 for her summer earnings expectation. Meanwhile, Barros had been awarded a scholarship from the Gates Millennium Scholars program that was large enough to cover her summer earnings expectation, but she says the school’s financial aid office declined to accept it, saying it was a required payment that she would have to make on her own. To pay for her and her family’s extra costs, Barros signed up for federal student loans, abstained from flying home for Thanksgiving, and cut back on her meal plan. “I definitely didn’t expect the bill to be that large—you hear about getting the Gates scholarship and you say, ‘Cool, I don’t have to graduate in debt.’ And then you find out you won’t get to do that and it’s a bit heartbreaking,” she says.

These students sometimes have to forego non-paid internships in order to get a paying summer job.  This puts them at a disadvantage when it comes time to find a job after graduation.

October 18, 2013

Are anti-bullying programs just feel-good attempts to solve a serious problem?

by Grace

Anti-bullying programs don’t work.  In fact, they increase the odds of being a bullying victim.

Anti-bullying programs that are now commonplace in schools may be having the opposite of their intended effect, according to new research from the University of Texas, Arlington.

In a study published in the Journal of Criminology on Thursday, a team of researchers found that students at schools with anti-bullying initiatives are actually more likely to be victims of bullying than students who attend schools without such programs.

Speculation about the reasons anti-bullying programs don’t work:

  • Bullies are able to learn how better to escape detection.
  • Educational programs increase the reporting of incidents.
  • Knowledge simply does not translate to prevention, and more sophisticated programs are needed

Schools use many programs that “lack solid evidence about their effectiveness“.

Among many educators, ‘personal anecdote trumps data’.

… Too often, they are swayed by marketing or anecdotes or the latest fad. And “invariably,” he added, “folks trying to sell a program will say there is evidence behind it,” even though that evidence is far from rigorous.

While Rachel’s Challenge and DARE both engage students, they don’t reduce bullying and drug abuse.

I once challenged the use of Rachel’s Challenge, an anti-bullying program, in our local schools.  When I questioned why the school was spending time and money on an anti-bullying program that could only offer “anecdotal” evidence of its efficacy, I was met with protests that it engaged many students and moved them to tears with its stories.

Another feel-good program is DARE, which aims to prevent drug abuse and violence,  Local teachers have acknowledged there is no data showing it works.  Again, their defense is that it engages students.

Related:  ‘Schools of education focus on fads, not knowledge and skills’ (Cost of College)

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