Last Thursday the U.S. News & World Report published its annual rankings of U.S. colleges and universities. The release of the rankings is always accompanied by speculation and anticipation…who will win the coveted top spot? The aftermath is equally predictable: schools that have moved up in the rankings tout their good news, other educators criticize the emphasis on misguided measures to rate schools, and parents spin into a frenzy and fret that their child may not get into one of the “top 25” schools. What amuses and frustrates me about these rankings and the clout that U.S. New & World Report commands is that no matter how questionable the criteria or poor the participation in the surveys which are used to rate schools, people from all sides of the aisle still look to the rankings as some kind of authoritative assessment of quality across the spectrum of higher education institutions.
Today I was reading the newly released college ranking issue while my freshman daughter, who heads off to college in a week, looked on. “Can I see this?” she asked as she grabbed the magazine from my hand. I knew exactly where she was headed…straight to the page with the rankings of liberal arts colleges. She quickly scanned the list, starting at the top, of course, and followed her finger down the page, glancing nervously for her school. “It isn’t here,” she said to me in a panic. “It’s there,” I assured her, and then pointed to it on the page, much to her relief, but not to mine. Despite everything I preach about “good” being what’s good for the student, my own daughter still falls victim to the ranking hysteria (I guess I do too since I already knew where her college ranked).
I, like most college consultants and counselors, make a point of talking to families and students about right fit and the fallacy of thinking one can actually meaningfully rank colleges. Do these rankings measure where your child is most likely to thrive, find the optimal social environment, get the best education that meets his or her needs and interests and at the best value, or whether the college he or she attends will predict future success in life (however one chooses to measure that)? Of course not! Then why are we overly fixated on them? We get caught up in prestige, name recognition and factors that have nothing to do with whether or not our children will receive a quality education that may open their eyes to the many possibilities available to them.
Here are some truths about the rankings. The U.S. News & World Report bases its rankings on 7 key measures, with the single highest weighted factor being that of peer assessment (in other words, the impression held by presidents, provosts or admission deans at other, unaffiliated institutions), which accounts for 25% of the ranking. Many schools choose to ignore these peer assessment surveys and only 48% actually filled them out this year. And among those that did, some are alleged to have manipulated their answers with the sole purpose of boosting their own rankings! The August 19 issue of Inside Higher Ed (http://www.insidehighered.com/news/2009/08/19/rankings) has a disturbing article that points out how schools may be gaming the system just to climb up the rankings.
Here’s my point: the flaws in these rankings are so obvious to so many, yet we still get caught up with them and ascribe undeserved value to the ranking order. Even with no intended manipulation, why would an admission dean at another college know or have any say in the quality of the education or experience a student will have at a college he or she may have never even visited and why is this given so much weight in the rankings?
So please, ask yourself as you assist your sons and daughters through the college admission process about the utility of college rankings and whether this is a good way to choose a college where your child will excel and be happy. What makes one institution better than the one ranked directly below it and who decided that college A should be listed higher than college B? Some of you will read this and continue to give undue attention and importance to these rankings. At a minimum, I hope you will think twice before you make assumptions about the value of a four year college or university based upon where it stacks up according to U.S. News & World Report. I very much welcome the thoughts of my readers on this topic!
Monday, August 24, 2009
Sunday, August 16, 2009
A New Credit Program to Help Repay Student Debt
The challenge of financing a college education has spawned many proposals on how to help students finance and achieve their college dreams. One of the newer and more innovative ideas received some press in this past Saturday's New York Times (Aid for Students Facing Mountain of Debt). The featured start-up company, SafeStart, has developed the concept of providing interest-free credit lines to student loan borrowers. The company's objective is to offer students a way to protect their credit and ease their cash flow should they experience financial hardships within the first few years after graduation. SafeStart also offers financial literacy training and debt counseling services to assist its student clients.
Here’s how the program works: Undergraduate students with guaranteed Stafford loans who face financial hardship after graduation or who go back to school during the repayment period can draw down on an interest-free line of credit. Advances under the line of credit are available to cover loan payments for up to 36 months over five years. After the five year borrowing period, the student must repay the SafeStart loans in 60 monthly payments.
The cost of the program ranges from $40 to $70 per each thousand dollars of principal borrowed, payable up-front. So a student who borrows $20,000 and is charged $70 per thousand will end up paying $1,400 for access to the line of credit. This is roughly equivalent to one year of interest on $20,000 in unsubsidized Stafford loans at 6.8%. The variation in fee charged is a function of whether the student opts for the financial literacy and debt management offerings, but the charge will also vary by college, presumably reflecting a specific school's student loan default history. To qualify to drawdown under the line of credit a borrower's monthly loan payment must exceed 10% of his or her income. One's credit score has no bearing on the ability to take advantage of this service, but a student’s college must participate in the program. While the company claims to have more than 600 schools signed up, I went to the website and typed in my alma mater, Wesleyan, only to discover that it presently does not participant.
The principals of SafeStart assert that they do not compete with the federal government’s income-based repayment plan that began July 1 of this year. Under that program, which was discussed in my June 5, 2009 blog posting, borrowers can cap their Stafford loan payments at a maximum of 15% of the amount by which family gross income exceeds the poverty level (currently $16,245 for an individual), and any amounts borrowed which remain outstanding after 25 years will be forgiven. With the income-based repayment plan, debt payments that are deferred due to the payment cap will continue to accrue interest, unlike borrowings under the interest-free SafeStart line.
So I decided to do a little calculation to test how eligibility to borrow under the SafeStart line compares to the payment cap on the federal government program. What I determined is that a student making $30,000 a year with a $230 monthy loan payment ($20,000 loan at 6.8%) would only have to pay $172 and could defer $57 a month, or $685 annually under the income-based repayment (with interest of course). Under the SafeStart program, the monthly loan payment would have to be $250 (higher than the actual $230 payment) in order to render the line eligible for borrowing. In other words, SafeStart only really has value for students who have a lot of debt!
Still, the SafeStart program may be a good option for some students, especially if they anticipate choosing a career where income is likely to be low in the early years, though the government's income-based repayment plan addresses the same issue. However, here are some caveats that should be considered before signing up for a SafeStart credit line. This works essentially like an insurance policy. One may end up paying a premium or fee for a policy that he or she will never access. In that case, the company says it will refund 30% of the fee paid. The programs is currently only available to cover undergraduate Stafford loans, though SafeStart’s website claims that it will roll out similar programs for graduate student Stafford loans, graduate PLUS and Perkins loans either this fall or by winter 2010. Also as mentioned, many schools do not currently participate, though that may change over time if the program catches on.
However, one of my prime concerns, as a former bond insurance executive, relates to SafeStart's future financial health. A company that extends credit must have ongoing access to liquidity (cash) and financial resources. SafeStart collects an up-front fee with a promise to extend credit for future drawdowns. What does that mean for someone who has paid the $1,400 in advance? The company may not have available funds to lend at the time the student needs it. I would just want to know more about the long-term financial viability of this company before I signed up for its loan repayment plan.
Here’s how the program works: Undergraduate students with guaranteed Stafford loans who face financial hardship after graduation or who go back to school during the repayment period can draw down on an interest-free line of credit. Advances under the line of credit are available to cover loan payments for up to 36 months over five years. After the five year borrowing period, the student must repay the SafeStart loans in 60 monthly payments.
The cost of the program ranges from $40 to $70 per each thousand dollars of principal borrowed, payable up-front. So a student who borrows $20,000 and is charged $70 per thousand will end up paying $1,400 for access to the line of credit. This is roughly equivalent to one year of interest on $20,000 in unsubsidized Stafford loans at 6.8%. The variation in fee charged is a function of whether the student opts for the financial literacy and debt management offerings, but the charge will also vary by college, presumably reflecting a specific school's student loan default history. To qualify to drawdown under the line of credit a borrower's monthly loan payment must exceed 10% of his or her income. One's credit score has no bearing on the ability to take advantage of this service, but a student’s college must participate in the program. While the company claims to have more than 600 schools signed up, I went to the website and typed in my alma mater, Wesleyan, only to discover that it presently does not participant.
The principals of SafeStart assert that they do not compete with the federal government’s income-based repayment plan that began July 1 of this year. Under that program, which was discussed in my June 5, 2009 blog posting, borrowers can cap their Stafford loan payments at a maximum of 15% of the amount by which family gross income exceeds the poverty level (currently $16,245 for an individual), and any amounts borrowed which remain outstanding after 25 years will be forgiven. With the income-based repayment plan, debt payments that are deferred due to the payment cap will continue to accrue interest, unlike borrowings under the interest-free SafeStart line.
So I decided to do a little calculation to test how eligibility to borrow under the SafeStart line compares to the payment cap on the federal government program. What I determined is that a student making $30,000 a year with a $230 monthy loan payment ($20,000 loan at 6.8%) would only have to pay $172 and could defer $57 a month, or $685 annually under the income-based repayment (with interest of course). Under the SafeStart program, the monthly loan payment would have to be $250 (higher than the actual $230 payment) in order to render the line eligible for borrowing. In other words, SafeStart only really has value for students who have a lot of debt!
Still, the SafeStart program may be a good option for some students, especially if they anticipate choosing a career where income is likely to be low in the early years, though the government's income-based repayment plan addresses the same issue. However, here are some caveats that should be considered before signing up for a SafeStart credit line. This works essentially like an insurance policy. One may end up paying a premium or fee for a policy that he or she will never access. In that case, the company says it will refund 30% of the fee paid. The programs is currently only available to cover undergraduate Stafford loans, though SafeStart’s website claims that it will roll out similar programs for graduate student Stafford loans, graduate PLUS and Perkins loans either this fall or by winter 2010. Also as mentioned, many schools do not currently participate, though that may change over time if the program catches on.
However, one of my prime concerns, as a former bond insurance executive, relates to SafeStart's future financial health. A company that extends credit must have ongoing access to liquidity (cash) and financial resources. SafeStart collects an up-front fee with a promise to extend credit for future drawdowns. What does that mean for someone who has paid the $1,400 in advance? The company may not have available funds to lend at the time the student needs it. I would just want to know more about the long-term financial viability of this company before I signed up for its loan repayment plan.
Thursday, August 13, 2009
Test Optional - Why Some Colleges Have Decided to Look Beyond Standardized Tests
More colleges and universities each year are choosing to go test optional, meaning that they no longer require standardized tests in the college admission process. One college, Sarah Lawrence, has taken it a step further: the school will not even look at standardized test scores even if submitted by the student. Institutions adopt test optional for a variety of reasons. They typically cite a desire to improve overall diversity, as test score requirements are believed to discourage minority applications and favor those from more affluent communities. Additionally, experience has shown that standardized tests are a less reliable predictor of performance in college than transcripts and grades, and in fact add little additional significant information to the student’s profile beyond what the college has already gleaned about the individual from other parts of the application.
There are now more than 820 accredited four year institutions that have decided to forego standardized test requirements and the number has been increasing each year. While I am not a proponent of the U.S. News and World Report rankings, I do think it is noteworthy that 32 of its top ranked liberal arts colleges no longer require standardized tests in their application process. This includes schools such as Bowdoin, Bates, Smith and Colby.
So what does this mean for the college applicant? If the standardized test scores do not reflect an otherwise strong academic performance, a student might want to consider applying to a few test optional colleges. You will rarely hear that a college values high SATs over grades and rigor of the high school curriculum. In fact, the reverse is often the case. Many will question a student’s motivation and effort when high test scores are not matched by classroom performance. However, students should not choose the test optional approach just to get out of taking or submitting SAT or ACT scores and as a way to take a short cut in the application process. Many schools will require that a student submit a graded paper or write additional essays in lieu of test scores. The complete list of test optional institutions and their specific requirements can be found on the website www.fairtest.org.
While the intentions of colleges and universities that have gone test optional are generally viewed positively, some critics are suspicious of the motives and believe that less altruistic objectives drive these policies. No one argues the equity and inclusion benefits, but skeptics question whether there is an unspoken agenda: are colleges also seeing this as a way to increase the number of applications, raise selectivity statistics and improve average test scores (which impacts rankings) by factoring in only submitted scores? But here is the real contradiction: many schools that have jettisoned standardized test requirements in the name of fairness, inclusion and limited reliability still use the scores as a primary factor in determining merit aid awards. How these colleges reconcile what appears to be conflicting policies is a hotly debated topic among admission officers.
The evolving role of standardized testing in college admission prompted the formation of the National Association for College Admission Counseling's (NACAC) Commission on the Use of Standardized Tests in Undergraduate Admission in late 2006. Its report to NACAC members at the annual conference in Seattle last fall made national news and basically concluded that one size does not fit all. Schools will continue to choose whatever evaluative tools best enable them to craft the desired class. No doubt this topic will receive more attention at NACAC's upcoming conference which I will be attending in Baltimore next month. Stay tuned to hear more in the future about how colleges select and justify their admission policies on standardized testing.
There are now more than 820 accredited four year institutions that have decided to forego standardized test requirements and the number has been increasing each year. While I am not a proponent of the U.S. News and World Report rankings, I do think it is noteworthy that 32 of its top ranked liberal arts colleges no longer require standardized tests in their application process. This includes schools such as Bowdoin, Bates, Smith and Colby.
So what does this mean for the college applicant? If the standardized test scores do not reflect an otherwise strong academic performance, a student might want to consider applying to a few test optional colleges. You will rarely hear that a college values high SATs over grades and rigor of the high school curriculum. In fact, the reverse is often the case. Many will question a student’s motivation and effort when high test scores are not matched by classroom performance. However, students should not choose the test optional approach just to get out of taking or submitting SAT or ACT scores and as a way to take a short cut in the application process. Many schools will require that a student submit a graded paper or write additional essays in lieu of test scores. The complete list of test optional institutions and their specific requirements can be found on the website www.fairtest.org.
While the intentions of colleges and universities that have gone test optional are generally viewed positively, some critics are suspicious of the motives and believe that less altruistic objectives drive these policies. No one argues the equity and inclusion benefits, but skeptics question whether there is an unspoken agenda: are colleges also seeing this as a way to increase the number of applications, raise selectivity statistics and improve average test scores (which impacts rankings) by factoring in only submitted scores? But here is the real contradiction: many schools that have jettisoned standardized test requirements in the name of fairness, inclusion and limited reliability still use the scores as a primary factor in determining merit aid awards. How these colleges reconcile what appears to be conflicting policies is a hotly debated topic among admission officers.
The evolving role of standardized testing in college admission prompted the formation of the National Association for College Admission Counseling's (NACAC) Commission on the Use of Standardized Tests in Undergraduate Admission in late 2006. Its report to NACAC members at the annual conference in Seattle last fall made national news and basically concluded that one size does not fit all. Schools will continue to choose whatever evaluative tools best enable them to craft the desired class. No doubt this topic will receive more attention at NACAC's upcoming conference which I will be attending in Baltimore next month. Stay tuned to hear more in the future about how colleges select and justify their admission policies on standardized testing.
Saturday, August 1, 2009
Textbook Rentals - A Viable Option for Managing College Costs
While tuition, room and board comprise the bulk of expenses one will pay during the college years, families actually should be focusing on the total Cost of Attendance, otherwise known as the COA, which also includes miscellaneous personal expenses, the cost of traveling to and from school, and textbook purchases. With prices of textbooks rising faster than the rate of inflation, today’s students can expect to pay a few thousand dollars alone in class reading material by the time they graduate. The high price of textbooks has spawned an active used-book market, as students have discovered that a few dog-eared pages and some yellow highlighting are worth overlooking in order to keep textbook costs down.
Now another option has emerged: textbook rentals. The rental alternative is available through recent online start-up companies such as Chegg.com and BookRenter.com, which claim to carry a selection of more than 2 million titles each. Some colleges have even begun their own on-campus programs.
The cited advantages to students in book rental programs are compelling. Companies quote discounts of 65 to 85 percent off the list price and books are either new or are generally in better condition than one would find on the used textbook shelf. Students can rent for the full term or semester, and may find that returns through pre-paid postage boxes, once the course is finished, make the process simpler than negotiating the re-sale of one’s textbooks at the bookstore.
However, before encouraging your student to rent textbooks, make sure you understand the potential drawbacks as well. Rental companies require students to return textbooks as soon as the course is completed, though may agree to a few day extension if arranged in advance. A 20 percent penalty is often assessed for a short delinquency period of about two weeks. After that, the student will be forced to pay the full list price and in essence buy the book as if it were new. So know your son or daughter! If procrastination, forgetfulness or the tendency to lose things are issues, renting may prove not to be a cost effective option.
The fact that rented books are generally in better condition than purchased used textbooks is no doubt due to each company’s policy of prohibiting doodling or writing in the margins. Limited highlighting is okay, but anything more will carry a similar penalty to the late return. The student will end up buying the book. Again, know your student.
Lastly, renting is only a viable option if there is no benefit to the student to keep a textbook past the end of the semester. For example, if building a personal library of books in one’s major is important, then renting makes little sense. So my best advice on textbooks: know the options, yet take into consideration your child’s needs and habits!
Now another option has emerged: textbook rentals. The rental alternative is available through recent online start-up companies such as Chegg.com and BookRenter.com, which claim to carry a selection of more than 2 million titles each. Some colleges have even begun their own on-campus programs.
The cited advantages to students in book rental programs are compelling. Companies quote discounts of 65 to 85 percent off the list price and books are either new or are generally in better condition than one would find on the used textbook shelf. Students can rent for the full term or semester, and may find that returns through pre-paid postage boxes, once the course is finished, make the process simpler than negotiating the re-sale of one’s textbooks at the bookstore.
However, before encouraging your student to rent textbooks, make sure you understand the potential drawbacks as well. Rental companies require students to return textbooks as soon as the course is completed, though may agree to a few day extension if arranged in advance. A 20 percent penalty is often assessed for a short delinquency period of about two weeks. After that, the student will be forced to pay the full list price and in essence buy the book as if it were new. So know your son or daughter! If procrastination, forgetfulness or the tendency to lose things are issues, renting may prove not to be a cost effective option.
The fact that rented books are generally in better condition than purchased used textbooks is no doubt due to each company’s policy of prohibiting doodling or writing in the margins. Limited highlighting is okay, but anything more will carry a similar penalty to the late return. The student will end up buying the book. Again, know your student.
Lastly, renting is only a viable option if there is no benefit to the student to keep a textbook past the end of the semester. For example, if building a personal library of books in one’s major is important, then renting makes little sense. So my best advice on textbooks: know the options, yet take into consideration your child’s needs and habits!
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