How important is it that my child has a career direction before going to college and how can I guide him or her through the career search process? This is a question many parents of high school students ponder. The topic was thoughtfully addressed by journalist Eilene Zimmerman in the New York Times Career Couch column which appeared on October 25, 2009: “Helping Teenagers Find Their Dreams.” You can access it at http://www.nytimes.com/2009/10/25/jobs/25career.html. I share Zimmerman’s belief that there is too much pressure on kids today to define themselves by a career before acquiring the tools to choose wisely and prior to gaining exposure to various options that might be right for them.
Students today receive so many messages, both subtle and overt, pressuring them to define their career interests before they are even out of high school. Consider the college application process: The first page on the Common Application is Future Plans! Many colleges want to know intended major as well as possible career or professional plans before they even see the GPA or know where the student graduated from high school! Anxious seniors who were hoping to use the next four years to figure this out come to me in a panic: Is it okay to put “Undecided?” I must confess that I, too, encourage students to put down an academic interest and possible career choice, though emphasize that they should view their college years as a time to broaden horizons and explore new things. The message I try to convey is that it is okay to change one's mind; in fact, it is expected. How can I say otherwise? I am on my third post college career!
In order to help our kids with this self discovery and career search, we can start by alleviating some of the pressure. Instead of projecting our own angst about their futures onto them, we ought to have conversations which begin to generate ideas, but also engage their interest. Talking about likes, dislikes, talents and strengths generally elicits far more enthusiasm and willingness to talk than Mr. Bradshaw’s put-off line in The Graduate: “Ben, what are you doing…? Be open, and try to listen rather than feel compelled to offer up answers.
Here are 5 tips you might consider the next time you find yourself engaged in a career discussion with your teen:
1) Help your child discover skills and interests rather than advise him or her to focus exclusively on career options – skills are transferable; careers come and go
2) Guide, don’t lead – Teens need to take the initiative. This is all about their dreams, not yours.
3) Take the cues and know when to back off; If your teen does not want to engage in this discussion when you want to, it won’t be productive.
4) Assure your children that uncertainty is okay and let them know that you support the need to explore. After all, they are still teens!
5) Accept that much has probably changed since you last embarked on a career search and recognize your own knowledge shortcomings. The career your teen ultimately chooses may not even exist today!
Wednesday, October 28, 2009
Saturday, October 17, 2009
ABCs of Financial Aid
COA, FAFSA, EFC…the alphabet of financial terms associated with paying for college can be a source of confusion for families in the thick of the college application process. As with applying to college, navigating financial aid requires assessing the landscape. Familiarization with concepts, knowing deadlines and being organized is the key to finding success in the financial aid process too.
Here is a quick college financing primer highlighting some of the critical terms you will need to know:
The Cost of Attendance, or COA, refers to the total annual cost of college, not just tuition and fees. Don’t forget to factor in room and board, books, transportation, and other personal expenses when trying to estimate what a year of college will cost. College financial aid officers look at the total COA when they package aid awards. Most, if not all colleges, will post the COA on their website.
The Free Application for Federal Student Aid, better known as the FAFSA, is used by colleges and universities to determine eligibility for financial aid. All students must file a FAFSA in order to receive any federal student aid. This includes the non-need based unsubsidized federally guaranteed Stafford student loans, so if you anticipate borrowing for college, don’t forget to file the FAFSA. It becomes available online January 1, 2010 for the 2010-2011 school year at http://www.fafsa.gov/.
The Expected Family Contribution or EFC which is calculated from the information you provide on the FAFSA is the amount determined to be what the family can and should contribute to the cost of the student’s education. The EFC is based on the family’s current assets and prior year's income, including both the student’s and parents’ financial data. After completing and submitting your FAFSA, you will receive a Student Aid Report, or SAR, which will show your EFC.
Nearly 600 schools also require that families complete the CSS/Profile form for the allocation of their institutional (non-government) funds. The CSS/Profile is administered by the College Board and can only be filed online. Families can access the Profile as early as October 1, 2009 for the 2010-2011 academic year by going to the College Board’s website: http://www.collegeboard.com/.
Now that you are familiar with these terms, there are some additional things that you should know about financial aid awards:
- Your “demonstrated need” (the COA minus your EFC) won’t necessarily be the amount shown on your SAR if the college also uses the CSS/Profile or another financial aid form. These methodologies are not the same, and therefore will produce different results. Institutions allocating their resources will naturally rely on the methodology that sets a lower threshold for your financial requirements, so don’t be surprised if the aid package is less than you expected, even from schools that claim to meet demonstrated need.
- Colleges tailor the CSS/Profile formula to their specific institutional requirements. In other words, your demonstrated need may vary from school to school. For example, some colleges consider the equity in your home; others do not.
- The college offering the most financial aid may not necessarily be providing the best package. One has to look at the composition of each award. A financial aid package that meets need with grants which do not have to be repaid is far more attractive than one comprised entirely of loans.
- If your financial situation changes materially after you’ve filed the forms, such as loss of employment, you should notify the colleges immediately.
Be sure to visit the Financial Aid section of each school’s website to check on requirements, deadlines and merit aid, if awarded. Since financial aid is a limited resource, getting things in early can make a difference. The sooner you complete the FAFSA, CSS/Profile and any other required forms, the better your chances of receiving financial assistance.
Here is a quick college financing primer highlighting some of the critical terms you will need to know:
The Cost of Attendance, or COA, refers to the total annual cost of college, not just tuition and fees. Don’t forget to factor in room and board, books, transportation, and other personal expenses when trying to estimate what a year of college will cost. College financial aid officers look at the total COA when they package aid awards. Most, if not all colleges, will post the COA on their website.
The Free Application for Federal Student Aid, better known as the FAFSA, is used by colleges and universities to determine eligibility for financial aid. All students must file a FAFSA in order to receive any federal student aid. This includes the non-need based unsubsidized federally guaranteed Stafford student loans, so if you anticipate borrowing for college, don’t forget to file the FAFSA. It becomes available online January 1, 2010 for the 2010-2011 school year at http://www.fafsa.gov/.
The Expected Family Contribution or EFC which is calculated from the information you provide on the FAFSA is the amount determined to be what the family can and should contribute to the cost of the student’s education. The EFC is based on the family’s current assets and prior year's income, including both the student’s and parents’ financial data. After completing and submitting your FAFSA, you will receive a Student Aid Report, or SAR, which will show your EFC.
Nearly 600 schools also require that families complete the CSS/Profile form for the allocation of their institutional (non-government) funds. The CSS/Profile is administered by the College Board and can only be filed online. Families can access the Profile as early as October 1, 2009 for the 2010-2011 academic year by going to the College Board’s website: http://www.collegeboard.com/.
Now that you are familiar with these terms, there are some additional things that you should know about financial aid awards:
- Your “demonstrated need” (the COA minus your EFC) won’t necessarily be the amount shown on your SAR if the college also uses the CSS/Profile or another financial aid form. These methodologies are not the same, and therefore will produce different results. Institutions allocating their resources will naturally rely on the methodology that sets a lower threshold for your financial requirements, so don’t be surprised if the aid package is less than you expected, even from schools that claim to meet demonstrated need.
- Colleges tailor the CSS/Profile formula to their specific institutional requirements. In other words, your demonstrated need may vary from school to school. For example, some colleges consider the equity in your home; others do not.
- The college offering the most financial aid may not necessarily be providing the best package. One has to look at the composition of each award. A financial aid package that meets need with grants which do not have to be repaid is far more attractive than one comprised entirely of loans.
- If your financial situation changes materially after you’ve filed the forms, such as loss of employment, you should notify the colleges immediately.
Be sure to visit the Financial Aid section of each school’s website to check on requirements, deadlines and merit aid, if awarded. Since financial aid is a limited resource, getting things in early can make a difference. The sooner you complete the FAFSA, CSS/Profile and any other required forms, the better your chances of receiving financial assistance.
Monday, October 5, 2009
FAFSA Revision Redux
In my June 29 post I wrote about forthcoming changes to the FAFSA, the financial aid form that must be completed by students and their families seeking federal aid to pay for college. This also includes anyone who wishes to borrow under the federally guaranteed Stafford loan program, whether for need based or the non-need based loans. The new and improved FAFSA for the 2010-2011 academic year will come online January 1, 2010 and can be accessed at http://www.fafsa.gov/ (do not confused this with http://www.fafsa.com/ which is NOT the Department of Education, but rather a site that will charge users for access and services!).
The soon-to-be-released version of the FAFSA should be easier to complete, as it will incorporate help text and instructions for specific questions as well as enhanced skip logic. That means you probably will no longer have to wade through pages of questions that are irrelevant to your circumstances. In addition, families will now be able to populate certain fields with tax return information retrieved directly from the IRS, a feature which will eliminate some 20 questions.
The objective of the FAFSA revision is simplification. So not surprising, one of the most frequently touted benefits to the new form is the ability to access your filed tax return to complete sections of the FAFSA form (a feature that will become available in January to those applying for spring 2010. It will be rolled out to all users later next year). A simple “Click Here” displayed in the income section for both the parents and the student instructs FAFSA to get your federal income tax information directly from the IRS. If you choose to use the IRS access feature you will no longer have to search for and re-calculate income data in order to complete the FAFSA. Much of what you need will come automatically from your filed return.
While this sounds like a vast improvement to a daunting form, the option of using financial information taken directly from the IRS may be a lot of hoopla that will have limited benefits in practice. Here is why.
As I noted in my June post, the information taken off your tax return is dated. If you fill out the FAFSA as soon as it is available on the website (January 1 every year for the school year beginning the following fall) in order to meet schools’ deadlines, you will be accessing a tax return showing income from two years prior. Once you retrieve data from the IRS and use this for your FAFSA, you can neither amend nor update it. The way the FAFSA completion process currently works, most people use income estimates and then update with actual numbers after the relevant tax return is filed. Using your tax data is not recommended for those married, but filing separately since only one tax return can be accessed. If your marital status has changed since your last filed return, you cannot choose this option.
Perhaps the greatest shortcoming to using your filed tax return is the fact that colleges will still want to see current financial data. So in the end you will find yourself gathering this information for the schools anyway. Furthermore, there are nearly 600 colleges and universities that require the CSS/Profile form for the purpose of allocating their institutional resources for student aid. That form has not been revised, so families will still be required to submit all of the financial data they had before.
Bottom line: don’t get too excited about the improvements to the FAFSA form yet. True, the skip logic and enhanced labeling and instructions should reduce the number of questions and some of the confusion. But in the end, most people are not likely to see any measurable reduction in the amount of financial data they are required to provide.
The soon-to-be-released version of the FAFSA should be easier to complete, as it will incorporate help text and instructions for specific questions as well as enhanced skip logic. That means you probably will no longer have to wade through pages of questions that are irrelevant to your circumstances. In addition, families will now be able to populate certain fields with tax return information retrieved directly from the IRS, a feature which will eliminate some 20 questions.
The objective of the FAFSA revision is simplification. So not surprising, one of the most frequently touted benefits to the new form is the ability to access your filed tax return to complete sections of the FAFSA form (a feature that will become available in January to those applying for spring 2010. It will be rolled out to all users later next year). A simple “Click Here” displayed in the income section for both the parents and the student instructs FAFSA to get your federal income tax information directly from the IRS. If you choose to use the IRS access feature you will no longer have to search for and re-calculate income data in order to complete the FAFSA. Much of what you need will come automatically from your filed return.
While this sounds like a vast improvement to a daunting form, the option of using financial information taken directly from the IRS may be a lot of hoopla that will have limited benefits in practice. Here is why.
As I noted in my June post, the information taken off your tax return is dated. If you fill out the FAFSA as soon as it is available on the website (January 1 every year for the school year beginning the following fall) in order to meet schools’ deadlines, you will be accessing a tax return showing income from two years prior. Once you retrieve data from the IRS and use this for your FAFSA, you can neither amend nor update it. The way the FAFSA completion process currently works, most people use income estimates and then update with actual numbers after the relevant tax return is filed. Using your tax data is not recommended for those married, but filing separately since only one tax return can be accessed. If your marital status has changed since your last filed return, you cannot choose this option.
Perhaps the greatest shortcoming to using your filed tax return is the fact that colleges will still want to see current financial data. So in the end you will find yourself gathering this information for the schools anyway. Furthermore, there are nearly 600 colleges and universities that require the CSS/Profile form for the purpose of allocating their institutional resources for student aid. That form has not been revised, so families will still be required to submit all of the financial data they had before.
Bottom line: don’t get too excited about the improvements to the FAFSA form yet. True, the skip logic and enhanced labeling and instructions should reduce the number of questions and some of the confusion. But in the end, most people are not likely to see any measurable reduction in the amount of financial data they are required to provide.
Tuesday, September 15, 2009
Tuition and Price Elasticity...How High Can It Go and at What Cost?
For those of you who have studied microeconomics, you probably remember the concept of price elasticity: how closely a change in demand correlates to a change in price. When demand falls as a result of a price increase, the goods or services are said to exhibit price elasticity of demand.
Up until now it has been fair to say that the price of a college education has exhibited low elasticity. While tuition has steadily increased, the number of applicants and students enrolling has also continued to rise. This has given college administrators little reason to try to put the breaks on the escalating price of attending college since they have been able to pass on these additional costs through upward adjustments to tuition. As journalist Ron Lieber noted in a September 5 New York Times article (“Why College Costs Rise, Even in a Recession”), the ability to increase tuition and fees without triggering a corresponding slowdown in demand has meant that colleges have been immune to pressures to behave like for-profit corporations which regularly seek ways to cut the fat out of budgets in order to control costs.
Some predict that the rising tide of college tuition is finally turning, though probably not for all higher education institutions. The most selective schools with strong name recognition will, no doubt, still draw many more applicants than they can possibly accommodate. However, crossing the $50,000 threshold and maintaining enrollment, especially in difficult economic times, may no longer be a realistic scenario for schools that are not in the top tier of selectivity.
Lieber goes on to say that holding tuition steady and opting instead to make unpopular cuts to a budget may be easier said than done. One of his key arguments is that colleges, especially liberal arts institutions, don’t insist that all academic departments be profit centers. Hoping to appeal to students with varied interests, they choose to provide a full range of majors regardless of whether the economics of doing so makes sense. Schools regularly allow the more popular majors to subsidize those that fail to breakeven. A thriving English department which generates ample income allows a college to rationalize offering majors in other departments that attract only 3-4 candidates a year.
After reading Lieber’s article I started to think about the future of the liberal arts education, especially given that many colleges have already reached the $50,000 mark and will, if you believe Lieber, be limited in their ability to continually raise their price. As colleges begin to take a hard look at how to reduce their budgets, some may start to rethink the feasibility of offering the full panoply of liberal arts subjects. Specialization may become more the norm than the rule, at least at colleges that don’t have the Ivy or quasi-Ivy League draw.
Some schools have already begun to re-think how they attract and retain students with broader academic interests, without having to incur additional costs or raise tuition. In August of this year, three Boston area colleges: Wellesley, Babson and Olin College of Engineering, announced a partnership to develop and offer joint programs which will expand the educational opportunities to students at their respective schools. The three institutions, possessing very distinct missions and few overlap academic departments, will now be able to collectively provide courses that had not previously been offered to their students, and at very little additional cost. I think it is reasonable to speculate that other schools will decide to take this one step further in the future, and may actually eliminate departments while partnering with neighboring colleges that have similar majors. Haverford and Bryn Mawr, within a short drive from each other in neighboring Philadelphia suburbs, in fact already do this. Are we likely to see more specialization and sharing of curriculum and faculty in the future? Sheer economics may become the overriding factor prompting such decisions for other colleges as they cross the $50,000 cost of attendance threshold. The implication for prospective students: if you plan to pursue a course of study that is less popular, try to get a sense for a college's commitment to that program before you commit the next 4 years to the school.
Up until now it has been fair to say that the price of a college education has exhibited low elasticity. While tuition has steadily increased, the number of applicants and students enrolling has also continued to rise. This has given college administrators little reason to try to put the breaks on the escalating price of attending college since they have been able to pass on these additional costs through upward adjustments to tuition. As journalist Ron Lieber noted in a September 5 New York Times article (“Why College Costs Rise, Even in a Recession”), the ability to increase tuition and fees without triggering a corresponding slowdown in demand has meant that colleges have been immune to pressures to behave like for-profit corporations which regularly seek ways to cut the fat out of budgets in order to control costs.
Some predict that the rising tide of college tuition is finally turning, though probably not for all higher education institutions. The most selective schools with strong name recognition will, no doubt, still draw many more applicants than they can possibly accommodate. However, crossing the $50,000 threshold and maintaining enrollment, especially in difficult economic times, may no longer be a realistic scenario for schools that are not in the top tier of selectivity.
Lieber goes on to say that holding tuition steady and opting instead to make unpopular cuts to a budget may be easier said than done. One of his key arguments is that colleges, especially liberal arts institutions, don’t insist that all academic departments be profit centers. Hoping to appeal to students with varied interests, they choose to provide a full range of majors regardless of whether the economics of doing so makes sense. Schools regularly allow the more popular majors to subsidize those that fail to breakeven. A thriving English department which generates ample income allows a college to rationalize offering majors in other departments that attract only 3-4 candidates a year.
After reading Lieber’s article I started to think about the future of the liberal arts education, especially given that many colleges have already reached the $50,000 mark and will, if you believe Lieber, be limited in their ability to continually raise their price. As colleges begin to take a hard look at how to reduce their budgets, some may start to rethink the feasibility of offering the full panoply of liberal arts subjects. Specialization may become more the norm than the rule, at least at colleges that don’t have the Ivy or quasi-Ivy League draw.
Some schools have already begun to re-think how they attract and retain students with broader academic interests, without having to incur additional costs or raise tuition. In August of this year, three Boston area colleges: Wellesley, Babson and Olin College of Engineering, announced a partnership to develop and offer joint programs which will expand the educational opportunities to students at their respective schools. The three institutions, possessing very distinct missions and few overlap academic departments, will now be able to collectively provide courses that had not previously been offered to their students, and at very little additional cost. I think it is reasonable to speculate that other schools will decide to take this one step further in the future, and may actually eliminate departments while partnering with neighboring colleges that have similar majors. Haverford and Bryn Mawr, within a short drive from each other in neighboring Philadelphia suburbs, in fact already do this. Are we likely to see more specialization and sharing of curriculum and faculty in the future? Sheer economics may become the overriding factor prompting such decisions for other colleges as they cross the $50,000 cost of attendance threshold. The implication for prospective students: if you plan to pursue a course of study that is less popular, try to get a sense for a college's commitment to that program before you commit the next 4 years to the school.
Monday, September 7, 2009
Score Choice...Misnomer?
What’s so great about Score Choice, the new College Board reporting policy that allows high school seniors to choose which of their SAT standardized test scores to send to colleges? After the initial excitement and fanfare many have concluded: perhaps not much.
Last year the College Board announced its plan to introduce the concept of Score Choice, allowing students for the first time to be selective about which SAT scores to send to colleges. The new reporting rules became effective beginning with the senior class graduating in 2010. The reason for the change in policy, according to the College Board, was an effort to “reduce student stress and improve the test day experience.” In actual practice, Score Choice is not as simple as originally hoped,and therefore, is not working exactly as initially planned. Individual colleges, it turns out, will still determine their own requirements that trump anything dictated by the College Board, suggesting that simplification and stress reduction could not be further from the truth.
And right from the start the program has had its critics. Is Score Choice just a ploy to increase fees to the College Board as students feel the need to take the tests multiple times in an effort to maximize their scores? Does the new policy further discriminate against less economically fortunate students who can afford neither test prep nor the registration fee for multiple test sittings?
Shortly after the initial announcement colleges started weighing in too. One by one many highly selective schools quickly made clear that regardless of the College Board directive, they would still require that applicants submit all scores. After all, most colleges state that they super score anyway, meaning they take the highest SAT section score from all test sittings. Why then would a student not want to submit all scores, especially if the highest math score was achieved in May and the best critical reading score happened to be from the September test date? Isn’t submitting all scores really to the student’s advantage?
If you are looking for the simplest way to track down different colleges’ requirements, you can go to http://professionals.collegeboard.com/profdownload/sat-score-use-practices-list.pdf where you will also find explanations of the 6 score reporting options from which colleges and universities must choose. For the student who can readily grasp the nuances of each of these Score-Use Practices based upon the written explanation (the word “obtuse” comes to mind), automatic admission to the college of choice might be a reasonable prize. One caveat: the best source for determining an individual college's requirement is the college itself. If its policy is not posted on the website, do not hesitate to give the admission office a call.
I am not trying to intentionally bash the College Board. Rather, I want to point out that the complicated new policy has actually raised the stress level as students and families try to figure it out, especially when kids are applying to multiple schools that don't follow the same Score-Use Practice. So what is the solution? My advice to all students is to forget that Score Choice was ever offered as an option. Give it your best shot each time you take the SAT and send all of your scores!
Last year the College Board announced its plan to introduce the concept of Score Choice, allowing students for the first time to be selective about which SAT scores to send to colleges. The new reporting rules became effective beginning with the senior class graduating in 2010. The reason for the change in policy, according to the College Board, was an effort to “reduce student stress and improve the test day experience.” In actual practice, Score Choice is not as simple as originally hoped,and therefore, is not working exactly as initially planned. Individual colleges, it turns out, will still determine their own requirements that trump anything dictated by the College Board, suggesting that simplification and stress reduction could not be further from the truth.
And right from the start the program has had its critics. Is Score Choice just a ploy to increase fees to the College Board as students feel the need to take the tests multiple times in an effort to maximize their scores? Does the new policy further discriminate against less economically fortunate students who can afford neither test prep nor the registration fee for multiple test sittings?
Shortly after the initial announcement colleges started weighing in too. One by one many highly selective schools quickly made clear that regardless of the College Board directive, they would still require that applicants submit all scores. After all, most colleges state that they super score anyway, meaning they take the highest SAT section score from all test sittings. Why then would a student not want to submit all scores, especially if the highest math score was achieved in May and the best critical reading score happened to be from the September test date? Isn’t submitting all scores really to the student’s advantage?
If you are looking for the simplest way to track down different colleges’ requirements, you can go to http://professionals.collegeboard.com/profdownload/sat-score-use-practices-list.pdf where you will also find explanations of the 6 score reporting options from which colleges and universities must choose. For the student who can readily grasp the nuances of each of these Score-Use Practices based upon the written explanation (the word “obtuse” comes to mind), automatic admission to the college of choice might be a reasonable prize. One caveat: the best source for determining an individual college's requirement is the college itself. If its policy is not posted on the website, do not hesitate to give the admission office a call.
I am not trying to intentionally bash the College Board. Rather, I want to point out that the complicated new policy has actually raised the stress level as students and families try to figure it out, especially when kids are applying to multiple schools that don't follow the same Score-Use Practice. So what is the solution? My advice to all students is to forget that Score Choice was ever offered as an option. Give it your best shot each time you take the SAT and send all of your scores!
Monday, August 24, 2009
College Rankings....Drum Role, Please!
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!
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!
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.
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