Category Archives: student loans

Financial Aid and the Plight of the Financially-Challenged

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I am a huge fan of need-based aid, as I described in this post last week. That doesn’t mean there aren’t some problems with the system. At the end of the day, most universities still prefer students that can pay their part. To do this, while maintaining the need-blind admission label, universities have employed a few techniques.

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Colleges adjust policies to attract high income students

One of these ways is early admission. Early admission policies allow students to apply in the fall to their favorite schools, and in return, those students must commit earlier to attend these schools. That seems harmless enough on the surface. In fact, a senior year of high school where one already has college plans sorted sounds like a lot of fun.

The problem is, information on financial aid packages is still not available until the spring. If the amount of financial aid offered could influence your decision (aka, paying full price is not an option for you), then you may not be able to commit early. This is one way that colleges can ensure they are getting students that can contribute more in tuition.

A second way is by offering merit-based scholarships rather than need-based scholarships. How could offering more scholarships be bad for poorer students? Seems crazy, right? This is how it could work. A $5000 merit-based scholarship for a student that can pay the remaining $20000 is far better for the school than offering a $20,000 need-based scholarship for a student that can only pay $5000.  With that $20,000 need-based scholarship, the school can offer four $5000 merit scholarships, bringing in $80,000 in tuition.

This is especially helpful for state-owned schools, where out-of-state students pay a much higher price. Giving them a merit-based scholarship may convince them to attend, when they will actually still pay much more than the average student. According to a May study by the New America Foundation, the percentage of students at private universities that received merit-based aid increased from 24% to 44% from 1995-97 to 2006-07, while the percentage receiving need-based scholarships decreased from 43% to 42%.

Along similar lines, the increase in student loan limits seems at first like a measure that should help low-income students. In reality, however, the increase in student loan limits has come with rising tuitions. There are many reasons for those rising costs, as we’ve discussed in past posts, but the net result is that low-income students graduate with much more debt than in the past. Students graduated with an average annual debt load of $35,200 this year, according to research from Fidelity Investments.

So what’s happened as a result of all this? Unsurprisingly, high-performing students from lower income backgrounds are less likely to attend prestigious schools. This has some serious consequences for those students. Similarly performing students that attend more selective universities have better chances of graduating and higher lifelong earnings.

According to research from the Georgetown Public Policy Institute, students with SAT scores of 1100-1199 that attended one of the 468 most selective schools had an 81% graduation rate, while those that attended open access two and four year schools had graduation rates of only 53%. Ten years after finishing schools, the graduates from the selective programs made $67,000 a year, on average, compared to $49,000 for those attending less selective schools.

The new ranking system that the Education Department is working on may address some of these issues. It will be tough to reach the proper balance in that ranking, as we’ve highlighted before, but it is a project worth pursuing.

For the record, the New America Report highlighted the fifteen schools below for being particularly generous in offering need-based aid, so for any of you out there looking at colleges, keep these guys in mind: Amherst College, Vassar College, Grinnell College, Williams College, MIT, Wellesley College, Cooper Union, Stanford University, University of Richmond, Pomona College, Rice University, Cornell University, Bowdoin College, Wesleyan University, and Dartmouth College.

A Scholarship in Need is a Scholarship Indeed!

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We’ve talked a lot in our blog about the rising costs of college and deepening student debt. But we have not discussed ways in which students might avoid those debts through scholarships. I realized this as I read through this article earlier this week about a girl that applied for over 100 scholarships. Her lessons from the process – stay organized, apply early, and recycle essays and recommendation letters, among other tips.

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Many unusual scholarship opportunities exist for those willing to put in the time to find them

After reading about this, I thought I’d look up a few scholarships, just to see what I might recommend to someone getting ready to attend college.  I found some cool stuff. For example, did you know that you can win scholarships for devising a zombie apocalypse plan, wearing Duck Tape to prom, or coming up with a new peanut butter sandwich recipe? Sound like fun scholarship applications. Maybe I should go back to school. And to prom.

Beyond these sorts of deals, though, I wanted to offer some serious advice. I found tips plastered all over the internet. The reoccurring themes were apply early, apply often, and apply for everything, whatever the award amounts. That all seems reasonable to me, but it also seems exhausting. I still recommend that you do it, of course.

But I want to recommend one big step first. Many students with good guidance counselors and involved parents will already know this step, but I am amazed by how often people misunderstand the types of scholarships that are available to attend more selective, high-priced schools. I am not talking about scholarships for the best essay, the best test scores, or the best apocalypse plan. I am talking about need-based scholarships.

I think many people don’t realize that once they get into a university, that university will very often offer free money for them to attend. Will they still have loans? Probably. Will they have to work while studying? Again, probably. Will they have to pay something? Yea, of course. Will it be much less than that $100,000+ price tag? Very often the answer is yes.

To qualify for this sort of aid, you need to fill out and submit your Free Application for Federal Student Aid (FAFSA) AND you may need to fill out a College Scholarship Service’s PROFILE form. I put that AND in capital letters because my high school guidance counselor did not even realize that a second form existed. Filling out these forms will require some effort from you and your parents. If you are financially independent, which will be very tough to prove, you can qualify for even more aid.

Is it worth doing all that, just to go to a better school? Absolutely. It will of course look better on your life-long resume, and you will likely have better teachers and smaller class sizes, though no guarantees. Equally important, though, a point often overlooked when choosing colleges, graduation rates are higher at more selective schools. Yea, those schools admit more serious students, but they also tend to offer more support for students in trouble and sometimes a little grade inflation to boot.

One more big point here. You do not have to be below the poverty line or even close to qualify for aid. Schools look at all sorts of factors and then make a determination on the abilities of you and your parents to pay tuition. They generally don’t expect your parents to be broke before OR after paying tuition. Different schools offer different amounts, so explore the options.

Definitely apply for all those crazy scholarships. Apply early, apply often, all that stuff. But first, sit down with your guidance counselor and figure out what forms you need (and double check online, because trust me, they don’t always know.) Then sit down with your parents and get them to fill them out. Those few hours could be the most economically well spent of your life.

As for universities, 61 in the US claim to meet 100% of student financial needs, according to US News. Theoretically, that means they do everything possible to make it financially viable for a student to attend once he or she is accepted. Beyond these, many other schools offer need-based scholarships, often very generous ones.

By giving need-based aid, the schools get some advantages, in terms of tax policies and media rankings, and they may get more advantages once the Obama administration’s new ranking system comes out. This doesn’t mean that universities don’t want or often prefer students that can pay full price. We’ll discuss a few of the strategies they employ on that front next week when we discuss the challenges facing need-based aid.

I Think, Therefore I Am…. Employable?

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What should be the purpose of undergraduate education?

College costs are going up. We’ve written about that a lot here on our blog and so has everyone else anywhere that covers education. These skyrocketing costs have prompted much soul-searching and more number crunching for students, professors, administrators, and policymakers.  What is the value of college? And is it worth it?

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What should be the goals of an undergraduate education? Who should decide them?

Undergraduate degree holders earn about $500,000 more over a lifetime compared to students with only a high school diploma, as we discussed last month in this post. Still a good deal overall. In this post, I want to put the numbers aside for a moment and ask the deeper question, what should a college education be about and how much freedom should the student have in determining that?

As an undergrad, I attended a special presentation by the philosophy department that was loosely themed, “Why it is not totally crazy to major in philosophy?” The primary speaker, a professor, offered several lofty goals for four years of higher education, finding oneself, thinking critically, that sort of stuff.

Then he added, as a final point, marketable skills. It was a bit of a buzzkill for us unrealistic, I mean idealistic, types. This professor had a simple solution, though. Take some computer science classes. Seriously, that was his advice, not a CS major or minor, just some classes. It seemed a strange point to hear from a philosophy prof, but looking back, gosh, I wish I had listened.

Last week, the New York Times Magazine offered some insight on the same topic in its article, “How to Get a Job With a Philosophy Degree.” The article, which I recommend reading, highlights some of the ways in which schools are trying to help undergraduate students, especially those in liberal arts majors, develop marketable skills for the post-graduation job search.

The article’s author, Susan Dominus, cites the example of group research and presentations incorporated into a Japanese history class, with the goal being the development of teamwork skills. She brings up an interesting point, though. What about students that simply want to learn, in the classic, academic sense, about Japanese history? Does group work contribute to or distract from their goals? And who makes that determination?

The question was less important when college was cheaper and data less plentiful. Even though recent reforms may bring college costs down, or at least slow the growth in prices, the success of graduates in finding jobs will be even more important. The government will measure it and potentially tie the universities’ eligibility for federal funds to that, among other measures. For these reasons, universities will care about employability even if students don’t.

So what happens to that classic, long-haired, knowledge-loving liberal arts guy that is a staple of freshman dorms everywhere? Well, he’ll probably still be there. But the question is, where will he be by senior year and where will that take him in the years that follow? The answer is not only important to him, who likely has debt related to his education, but to his university as well, which relies on his success in finding a job for its own federal funding.

Can Obama’s Higher Education Reform Pass?

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Obama’s higher education reform is ambitious. In fact, one could call it ambitious if the Democrats controlled both houses of Congress. With the current, divided Congress, it looks like something between wishful thinking and a kamikaze crash. Some might wonder why Obama bothered to introduce this plan, or any plan for anything ambitious really. There is little to no chance these proposals will survive in the House of Representatives. Obama’s plan calls for more government oversight, with complicated caveats, which conservatives can’t stand. Plus, agreeing with Obama on almost anything can have political consequences for red-state representatives.

Obama, edtech, higher education reform

Obama’s Higher Education Reform Faces Challenges in Congress

So why did he do it? Well, looking more closely, we can see that many of his proposals don’t actually require Congressional approval. For example, he asked the Dept of Education to create a new university ranking system based on value, affordability, and other factors by 2015. By 2018, he wants to tie those ranks to the distribution of financial aid. For the first task, he doesn’t need approval. For the second, he does, but not until 2018, more than a year after he leaves office.

By that time, the rankings system will have been in place for a few years. Maybe if it works well, Congress will go for it. Maybe they won’t. If not, Obama will lose a key element in his reform plan, but some important goals are still likely to be accomplished. Schools will hopefully begin paying attention to these issues in the same way, or even more carefully, than factors like selectivity and average test scores that improve standing in US News & World Report’s annual ranking.

It is a bit like one of those diets where they ask you to write things down. Even if you don’t consciously change your behavior, the fact that you are writing it down and paying attention influences your habits. Check it out here, if you don’t believe me. Hopefully, the Education Dept’s rankings can bring this sort of awareness to the nation’s colleges and universities. Earlier this year, the Dept website already began publishing more information about colleges and universities on its College Scorecard webpage.

On loan repayment, the President’s administration can make some significant progress, even without Congress. Obama cannot automatically make all borrowers eligible for the pay-as-you-earn program without Congress. He can extend eligibility to all direct loan (from the Education Dept) borrowers, though, just not those that borrowed through the FFEL program, which was discontinued in 2010. And those in the FFEL program can generally convert loans into direct loans, so in a sense, most borrowers are eligible, if they take the time and effort to make themselves so. The Education Dept does not need approval for its awareness program, which basically educates students and recent grads about their eligibility for benefits.

Finally, for the new emphasis on technology, discussed in our last post, the Obama administration has few congressional hurdles. Of course, many of the bullet points on the plan are simply statements of support, so it is tough to stop measures that are not specifically spelled out yet. In terms of announced funding, Obama will need congressional approval for his $260 million “First in the World” program promoting innovation, but not for the Labor Dept’s $500 million program for accelerated degree programs at community colleges and some four-year universities.

For the competency-based credit system and the re-design of courses and student services through technology, all areas which are important for Rukuku and its business, the administration is free to begin launching experimental programs. We’re excited about that and looking forward to joining in. Let the innovation begin.

To Borrow is Human; to Forgive, Divine.

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In our last post, we talked about Obama’s plan to cap student loan payments at 10% of monthly income. Today we’re looking at another part of program, the loan forgiveness clause. When student debt payments drag on until the 20 year mark, the government automatically erases the debt. For those working in the public sector, the government takes over the debt after 10 years.

Student Loan, Obama Higher Education Reform

Uncle Sam forgives the remaining student loan debt after ten years for those working in the public sector.

The challenge with such a program is, as with anything anywhere, preventing people from taking advantage of the rules. Politico brought one such case to light recently, related to the 10 year forgiveness plan for public sector employees. Law schools at Georgetown and other universities advertised programs requiring no student loan payments ever, partly because of government programs.

In a sense, it is a generous program. Georgetown offers to make ten years of loan payments for law graduates that work in the public sector. But then, the government takes care of the rest, and this is even advertised on the program website. Check it out here. https://www.law.georgetown.edu/admissions-financial-aid/office-of-financial-aid/lrap/LRAP-III.cfm

With income-based payments, borrowers obviously make less progress on the underlying principal, meaning a larger amount is still outstanding after ten years. For professional school graduates, that amount can easily reach beyond $100,000.

For reference, here’s the politico story: http://www.politico.com/story/2013/08/law-schools-devise-debt-free-path-to-degree-95391.html

It is not quite as scandalous as an iPhone pic of a private part, but it is hard to believe this is what lawmakers were hoping for when they passed the original law in 2007 or when Obama shortened the time limits and lowered the income caps last year. (nor what Apple was hoping for when it created the iPhone).

When the government caps the payments at 10% of income, one would assume it is the borrower making those 10% payments, not their former university or anyone else. Does that count as extra income, for example? If so, do they have to recalculate the 10%? This is only one case, of course, and not an egregious one, but my guess is there will be more, especially as the program expands.

All that being said, an average participant in the program does get a lighter load in leaner times and still has responsibility for the loan. That’s what the program should do. Graduates don’t get out of the debt by making lower payments. They just extend the amount of time they will be paying on the loan, which of course means more interest payments long term. But they get a break, when they need it.

While the government will forgive the loan after 20 years (10 years in the public sector, as I mentioned above), 20 years of paying 10% of your income and still being in debt does not seem like getting off that easily. People are creative, though. Going forward, we’ll see how many more stories come up involving imaginative ideas for offloading loans at that ten or even twenty year mark. Feel free to share any such ideas in the comments section.

In our next post, we’ll look at the cost control aspects of Obama’s plan.