Forgive Us Our Student Debts

Rising Costs Without Commensurate Returns

2009-11-19T11:37:00.002-05:00

Between 1982 and 2007, the costs of a college degree increased 439% while family income rose 147%! How could this happen? Obviously, there are many influencers, but the biggest contributing factor appears to be the "ready" availability of federally-backed student loans. Whenever unlimited or "easy" financing is available for any large consumer purchase, price paid tends to soar.

Forty-two colleges are now over $50,000 per year (room, board and tuition) and in 2004 there were only two colleges which cost more than $40,000 per year! The dark side of this picture is that currently there are 30 million federally-backed student loans with a combined total of $500 billion, and these loans are not collateralized or dischargeable through bankruptcy!

In addition, many families utilize home equity lines-of-credit to finance college and these numbers are extremely difficult to track. One conservative estimate states that the "heloc" amount is 30% to 40% in addition to the $550 billion which are federally-backed.

Interestingly, 20% of students who graduated between 1992 and 1993 with over $15,000 in college loans had defaulted on their loans within 10 years of graduation.

Student loan defaults have increased 43% between 2008 and 2009, while among college graduates who are employed full-time and between the ages of 25 and 34 their earnings have decreased by 11% from 2002 to 2009.

More than ever, families and students must apply intelligent consumer strategies to the selection and financing of a college education. Anything less is a recipe for disaster.

FOUR YEAR DEGREES: A “DYING” BREED

2009-06-08T15:21:00.001-04:00

Oxymorons have become a generally-accepted part of American culture. Accurate horoscope, airline food, casual Dress, good loser, long shorts, authentic reproductions, and now, “a four-year college degree”!!!

The latest polling data from the National Center for Education Statistics shows that only one-in-three of every freshman entering college in the Fall of 2009, will graduate by 2015!!

This explodes the prevailing myth that colleges are “four year degree experiences”; six-year degrees are more the norm.

This also contributes to the ever-increasing numbers of students who graduate with staggering amounts of student loans. The most recent statistics show that currently there is $85 Billion in student loans (as measured by the U.S, Department of Education); and most likely an ADDITIONAL $40 Billion in Home Equity loans that cannot be traced to college (but are being used to fund undergraduate studies).

On average, four-year colleges graduate fewer than 60 percent of their freshmen within six years---------but at many institutions graduation rates are far worse.

Examples abound: the University of Louisville (which enrolls over seventeen thousand undergraduates) has a 44 percent six-year graduation rate. At the University of Memphis, the rate is 34 percent and at the University of Alaska, Fairbanks only 25 percent of students graduate within six years.

Colleges and universities receive tens of billions of dollars directly AND indirectly from taxpayers every year, but the graduation rates suggest that many of these institutions are not serving their “customers” well-------------particularly in the area of up-front OR projected cost-of-attendance.

THE SEVEN DEADLY MISTAKES CONCERNING COLLEGE!!

2009-03-31T14:41:00.001-04:00

With over five years experience in assisting families through the financial jungle called “paying for college”; I have compiled the seven “deadliest” mistakes most prevalent in the college process.

(1) Visit a college you cannot afford: this strategy was originated by realtors and is euphemistically called “up-selling”----------when committed in the college visit process---- it quickly leads to family arguments and eventually, MASSIVE amounts of college debt!!

(2) Closely aligned with #1, is allowing a 17 or 18 year old to greatly influence a $200,000 + college attendance decision-----------------this also usually leads to MASSIVE amounts of college debt!!

(3) Minimize the emotion associated with a massive consumer purchase----------------------particularly one being DRIVEN by a 17 or 18 year old !!

(4) CHALLENGE all financial aid packages---------------one of the biggest lies we hear is “the college gave us a GREAT financial aid package”---------our response is ALWAYS-----------------compared to what?? We have discovered most families simply cannot interpret a college financial aid package.

(5) How much is “prestige” worth in the college decision process?? It is worth a lot to High School guidance counselors (so they can boast about another graduate of their High School attending an Ivy League college)------------------however, the guidance department WILL NOT assist you in PAYING for the college!!

(6) Last year the average college graduate received a degree in 5.5 years-----NOT FOUR-----------------the most important component of saving money in college is SPENDING LESS TIME IN COLLEGE !!

(7) The average college student changes majors three times during their college career and 40% of students NEVER graduate. The only thing worst than GRADUATING college with massive amounts of college debt----------------is NOT GRADUATING college and still having MASSIVE amounts of college debt!!

“We received a TERRIFIC Financial Aid Package for our student…………”

2009-03-10T11:10:00.000-04:00

How many times have you heard this comment from a friend or acquaintance??
Recently I was discussing the high cost of attending college with a friend.
When he mentioned the college his daughter was attending, I responded how expensive that particular school was (almost $50,000 per year!!). My friend replied that she would never have gone to that school but “they offered her a terrific financial aid package”.

That caused me to think, has anyone ever told you that their son or daughter received a TERRIBLE financial aid package? Perhaps one of the reasons we have not heard this, is that the college ALWAYS says that we are offering you a GREAT financial aid package!!

In analyzing our clients’ college financial aid packages, we have found that the offers that most parents feel are good--------------are MEDIOCRE at best.

The ONLY way to truly understand the worth of a college financial aid offer is to compare it to offers given in the past to students and families in similar situations.
Of course, our statistical database allows us to do that, and also empowers the family to negotiate with the college in an effort to increase the financial aid package.

So the next time you hear about a “terrific financial aid package”----------a GREAT response would be------------------“compared to what??”

PITY THE “POOR” COLLEGES !!!

2009-02-03T09:28:00.000-05:00

Perhaps it is time to mount a MASSIVE fund-raising campaign for the nation’s colleges.

In the last month, I have received grave letters of concern from the president’s of two VERY prestigious institutions.

In a nutshell, both schools were extremely alarmed about the impact the nation’s deteriorating fiscal condition has had on their school’s endowment.

Both administrators alluded to 20%+ decreases in their billion dollar endowments; which will necessitate “significant reductions” in financial aid to student families.

It is interesting to note, that over the last five years (with investments growing exponentially) colleges DID NOT initiate “significant increases” in financial aid to families.

Both schools announced (lower than usual) 4% tuition increases-----------instead of the “standard” 7% to 9% tuition increases---------------which they had averaged for the last 17 years !!

When quizzed as to why they did not “hold-the-line” on tuition increases; they BOTH explained that 4% allowed them to “keep pace” with their competitor’s practices.

From my vantage point it appears as if this financial “challenge” for the nation’s colleges will simply translate into more college loans and debt for their students and families !!

Financial Meltdown - Ripple Effects?

2008-10-14T14:14:00.000-04:00

The financial pressures on America’s families continue to mount. Recently President Bush stated that one of the areas impacted by the current financial crisis was “a family’s ability to borrow money for college.”

At the highest levels of our country, borrowing money to finance college is a NECESSARY and ACCEPTED practice.

The current economic climate in the U.S., with the subprime crisis, escalating foreclosures, and inflationary pressure on gasoline and groceries, has placed a greater strain on the family budget than ever before.

32% of families use “home equity” loans to pay for college. These loans (and, in fact ALL loans) will now be made at much higher interest rates; AND will be higher to families who have credit scores under 700 !!

Where can families go for assistance in finding a reasonably-priced college, while reducing student debt??

High School guidance counselors are really limited in their involvement with families about finances; AND colleges are really of little use beyond suggesting submitting the FAFSA (Free Application for Federal Student Aid).

Many families have used College Assistance Plus (a nationwide firm) who specializes in assisting families with the entire college process, while emphasizing the reduction of college loans.

A Real-Life Tragedy!

2008-09-03T21:11:00.002-04:00

The average consumer has NO CONCEPT of the impact of college debt on a young person’s life and future. My wife and I experienced a tragic example of this last weekend when dining at one of our favorite out-door restaurants.

Jennie, our waitress, mentioned that she expects to graduate next May with a Master's degree in Special Education from a local college. I inquired how the local job market appeared, how long this degree pursuit had required, AND whether she had any college loans.

Jennie replied that the job market for teachers was “soft” (she expected to substitute teach for several years), it had taken her SEVEN YEARS to attain her Master’s degree, AND she will have over $85,000 in college loans upon graduation!!

Statistics indicate that 40% of college attendees NEVER consider the cost of school when making a decision where to attend...AND most families feel that “the most valuable advice with respect to paying for college comes from the college’s financial aid office."

REALLY??!!

IF Jennie obtains employment, her starting salary will be less than $40,000 per year, OR a “take-home” salary of $3,000 per month----BUT----it will cost her close to $1,000 per month to SERVICE HER COLLEGE LOANS for thirty years!!

College - or Retirement? You Choose!

2008-08-28T14:09:00.000-04:00

The “bible” on Higher Education, “Inside Higher Ed,” recently published some alarming financial statistics on the choices that families are being forced to make when financing their student’s college education.

The Gallup Poll found that 47% of families utilize student and/or family borrowing to pay for college. Many of those parents (32%) “tap into” home equity lines of credit----on average OVER $10,000 per year.

The financial community sings the praises of 529 college savings plans, but they were used by ONLY 9% of the respondents and averaged less than $8,000 per year towards the college’s cost.

The future graduates are also being financially-strapped in obtaining that degree, as 23% of students have loans averaging $7,000 per year.

A Vice-President for Sallie Mae (the Poll’s sponsor) is quoted as saying that “the number 1 piece of good news is the OVERWHELMING consensus that college is worth it, AND the students and families are willing to do what it takes to pay for it”----WOW----that IS good news !!

EVEN THOUGH----the AVERAGE (inflation-adjusted) starting salary for college graduates HAS NOT RISEN in 30 years!!

Who Should You Trust?

2008-08-26T14:06:00.001-04:00

Sallie Mae and the Gallup Polling Organization recently released the results of a survey entitled “How America Pays for College.” The survey was conducted during the 2007-2008 academic year and questioned 684 students and 720 parents of traditional-aged undergraduates.

The results underscore the lack of understanding in general about the entire college process and the expected payback resulting from an expensive and prestigious college degree.

Most respondents felt that “the best assistance available on figuring out their family’s financial situation was the college’s financial aid office.” This belief can be compared to following the financing and purchasing advice of your local car dealer when buying an automobile!!

One respondent to the survey results wrote: “when I went to college, I was pushed hard by the FINANCIAL AID OFFICE to take out the full $40,000 in federal and private loans. They told me it was because a BA degree GUARANTEED me a starting salary of $50,000. Well, it’s 9 years later, and I’m still waiting to see that starting salary. Sometimes it’s NOT what the consumer knows, but what the financial aid people do to the consumer.”

Perhaps the most startling finding was that 40% of families DO NOT CONSIDER the cost of a college when making a decision on attendance!!

Where have ALL the lenders gone?

2008-08-25T13:52:00.000-04:00

Last year I had the privilege of listening to a Senior Vice-President of Western New York's largest bank explain how "his" bank felt it was a public responsibility to participate in the college lending marketplace.

I received phone calls today from two families who placed college loans with this bank last year, and they informed me that this bank now says that they "no longer participate" in college lending.

What happened to the sense of public responsibility that was expressed last year??

OR----has this bank decided (like most American colleges) that families can bear the burden of college on their own.

With the nationwide credit crunch AND lending interest rates under intense scrutiny----all of a sudden responsibility to (and concern for) borrowers has disappeared.

Isn't it about time for families to cease submitting to colleges (which appear to be the LAST NON-regulated industry in the USA)??

Compared to colleges and lending institutions, the oil industry looks like the Pillsbury Doughboy!!

How much is a college student worth?

2008-05-27T12:24:00.002-04:00

Have you ever wondered how much a studen is "worth" to any college??

Using this as a premise can take one through an interesting exercise in exactly how any college attributes heir financial aid awards to a specific student.

Is a talented female worth more than a talented male? What does it "cost" to recruit a talented minority student who is gifted in music?

If you apply the corporate Human Resources model, the incoming freshman class will consist of a variety of talents and skills----AND the colleges will be willing to "pay" for the appropriate match. Understanding this as a parent/consumer can save unbelievable sums of money and MUST always be taken into consideration when choosing a college.

Great insight can be obtained as to your student's "attractiveness" by comparing financial aid offers from colleges that rank themselves similarly.

A Reasonable Tuition Increase?

2008-04-15T16:02:00.004-04:00

With gasoline prices increasing by 33% in the last 12 months, it appears that a 5% annual tuition increase is equitable. What is not factored in is that private college tuition prices have increased 375% in the last 25 years, while housing is up 124% and medical care is up 223%.

What is driving these astronomical college price increases?

Viewers who watched Davidson College's men's basketball team perform so well in the recent NCAA basketball tournament might be surprised to learn that students at the North Carolina college get free laundry service. Drop off a bag of dirty clothes, and two days later you can pick up shirts and pants, pressed and on hangers, with the rest folded and tucked into a brown paper bundle.

Just as there is no "free lunch," there is really no "free laundry service." Incoming freshmen at Davidson will pay $42,950 in the fall of 2008, and as seniors they will pay approximately $55,000 per year!

Average salaries for college administrators rose by 4% in 2007-2008, beating inflation for the 11th straight year. I'd like to wonder why that is, but then I look at the huge increases in college tuition, and I see.

Last year, Princeton froze tuition (at $44,000 per year). However, they also saw fit to increase room and board by 18%. Obviously the increase in gasoline prices was anticipated by the economic department.

Financial aid - or financial pain?

2008-04-03T12:02:00.002-04:00

Recently I have had the opportunity to review many “financial aid” packages from colleges across the country. I am continually amazed at the way representatives of institutions of higher learning can mis-represent and color the facts of financial aid to families.

Let me be VERY clear----loans are NOT financial aid! They represent long term pain, at best, and financial bondage at worst!!

Some quotes from college representatives are:

“When you are thinking about where to attend college, cost should not be your main consideration.”

“I don’t think college cost should be a factor to where students apply for admission.”

And how about this one... “Students should not look at a school because it is affordable. The student's ‘college experience’ is what really matters.”

We are growing a college debt-laden generation that is being led to the slaughter by colleges who should instead be teaching fiscal conservativeness and prudent management of resources.

It seems that our only hope for college debt is a GOVERNMENT BAIL-OUT!

Would you co-sign for your child to buy a new car?

2008-03-27T14:34:00.001-04:00

When a family evaluates the available options of paying for college, invariably college loans appear to be the only solution. Rhetorically, one might ask if it is prudent reasoning to co-sign a loan for a 17 or 18 year old----so they can purchase a BRAND NEW $25,000 car??

If this appears illogical, why is it that many families will co-sign for that amount FOUR YEARS in succession to finance a college education.

Is the entire decision motivated by the fact that a college graduates future earning’s potential can be $1,000,000 greater than a NON-college graduate?? The fallacy in that thinking is that the college graduate WILL DEFINITELY EARN that $1,000,000!!

What occurs in the college graduate’s life while she/he is attempting to PAY BACK the $100,000 in accumulated college debt----OR----does the student receive the $1,000,000 differential upon graduation??

Things that make you go hmmmmmmmmmmmmmmmm!!

Sub-Prime Loan Disaster

2008-03-20T12:53:00.001-04:00

Most people have not connected the dots, but the impact of “liar” mortgage loans on college debt will be SIGNIFICANT!!

Here is how I believe we will get there: the mortgage industry truly drives interest rates, and the current chaos in the housing market is generating HIGHER INTEREST RATES!!! In addition to this upward interest rate pressure, there is increasing pressure on lenders to cease “bundling” OR “packaging” loans for resale---------which the mortgage industry calls “securitization.”

Securitization is also becoming very scarce within the college loan industry. Banks are NO LONGER able to package loans and achieve economies-of-scale by bundling and selling college loans.

I believe it is very reasonable to expect college loan interest rates that are TWO PERCENTAGE POINTS HIGHER than what is available today (in some cases OVER 10%)------------prior to college openings in the Fall of 2008.

Just another reason to use strong consumer purchasing principles when choosing a college!!

A huge consumer purchase

2008-03-06T12:42:00.002-05:00

What is the NUMBER ONE mistake families make in considering a college education for their son or daughter? I believe it's not taking into consideration that this is NO different than any other large consumer purchase...such as a house or a car.

We must look at a variety of schools, with their “return-on-investment” in mind (starting salaries for college graduates---when adjusted for inflation--- have remained FLAT at $42,000 per year for the last thirty years!!).

Remember that over 40% of students NEVER receive a degree, and 30% of students transfer colleges in the first two years.

Some thoughts on how to make sure you don't get trapped by college debt: evaluate many schools (particularly outside your geographical area), be certain each school offers ALL your major areas of interest (most students change majors four times—prior to receiving a degree) and appeal any financial aid offer for more money.

An informed consumer receives the BEST college financial aid package!

The New Math: Four Years of College...in Five Years

2008-02-26T09:06:00.002-05:00

When one discusses the factors that drive college loan burdens, the fact that a FOUR YEAR degree----a misnomer for many----MUST be considered.

College graduation rates for the last 24 years reveal some interesting findings. In private four year colleges, 43% of graduates require MORE than four years to obtain a degree!! In public, state-funded four year colleges, 60% of graduates require MORE than four years to obtain a degree!! The national average for all four year colleges shows that 48% of graduates require MORE than four years to obtain a degree!!

Isn’t it about time to call a four year degree what it truly is?? A FIVE YEAR DEGREE----that is possible to obtain in four years----ONLY IF the sun, moon, and stars are perfectly aligned.

Is it any wonder that it is so difficult to budget for the cost of a degree, when the price of that degree is (according to the above statistics) often under-estimated by 20%.

More food for thought on why college loans are escalating more rapidly than any family budget item----with all deference to gasoline prices ---- which are controlled by the Middle East, NOT Americans!!

Forgive Us Our Student Debt

2008-02-14T11:44:00.000-05:00

I recently heard about a collection agency in the Southern Tier of New York State, which has 225 collection representatives who are ALL attempting to collect $1.5 Million in bad COLLEGE LOANS; that one small center is attempting to recover over $300 Million in college loans----IN DEFAULT!!

With a bit of imagination, what are those numbers nationwide?

One of the unknown statistics about college students is that almost 40% DO NOT GRADUATE. That means that many, many college students incur huge amounts of college debt but NEVER receive degrees.

Although much has been made of the impact of the sub-prime mortgage loan debacle, very little has been written about the devastating impact of college debt. The answer IS NOT in Federal assistance. Pressure must be brought to bear on the colleges who have no downward pressure on inevitable 6% yearly price increases.

In this politically-charged election year one of the issues that MUST be addressed is the increasing impact on future generations----who feel they have no other choice but to borrow greater and greater sums to fund their education.

College Financial Aid - the 1,000 Pound Gorilla

2008-02-08T14:40:00.000-05:00

Recently I heard Hillary Clinton denigrate “predatory college lenders” in a political TV commercial.

As I reflected on the accuracy and intent of that comment, it caused me to reflect on the TRUE REASON for these so-called “predatory lenders.”

My wife and I attended a wedding in Boston last summer where the bride and groom had a COMBINED TOTAL of $208,000 in college debt! Then, last evening at our favorite restaurant, our waitress casually mentioned that she was finishing up her senior year in college (with a degree in Early Childhood Education), and she has $78,000 in college debt!

In the last 30 years colleges have raised their prices 294%, while the average starting salary of a college graduate (INFLATION—ADJUSTED!) is still $42,000 per year!!!

Why are colleges continuing to raise their prices, on average 7% per year??? Because students and families are willing to borrow the monies to pay those prices----with a FALSE perception that it will all be WORTH IT.

This is one of the biggest lies foisted on the American family today, and is propagated daily by academia.