Why Should You Care About Student Debt?

The New York Times kicked off its series “Degrees of Debt” with an article entitled A Generation Hobbled by the Soaring Cost of College. This article touches on how the cost of college has skyrocketed and how that increasing cost has and will affect the current generation of students.  This is a very timely piece with the state of the currentUS economy and the impending debate on student loan rates on Capitol Hill.

I’ve discussed this issue with my friends over the past week and have heard repeatedly- ‘why should I care?  I’m not in college.’  My response (much to the chagrin of my father) is in the form of a question- why would you not care?  If only because one day your children will want to go to college and their tuition bill will follow, but more so because of the lasting affects this will have on the American economy.  In the article Rajeeve V. Date, deputy director of the Consumer Financial Protection Bureau, draws likeness to the predatory lending norms associated with the current housing crisis- and we have all felt the lasting effects of allowing that crisis to continue on too long.

But could this be worse? An entire generation is graduating from college with a student loan payment that is double (or triple) the amount of an average mortgage payment. These students should be coming out of college, finding jobs, buying new cars, traveling the country, getting married and buying houses (they are our economic stimulus package!).  But instead, they are living with their parents, taking on whatever job they can find to make ends meet and putting every cent they have into paying off their debt to keep from defaulting on a loan that was taken out so they could better their lives through education.  Ironic, right?

So what is the answer?  Not go to college? Increase taxes to fund higher education?  Very few would agree that those are good answers.  My answer is proper planning.  Choosing the right college and knowing how you are going to pay for it BEFORE your tuition bill comes.  One could argue that proper financial planning for college should start at the moment a woman finds out she will become a mother, but we live in the real world and life often gets in the way of funding a college savings plan. Most parents don’t start planning for college until their student starts seriously talking about going college (sometime around their sophomore year of high school), and that’s OK.  Just make sure that you have a plan; this will help you avoid the last minute panic of taking out too much in student loans.

Let’s face it, student loans are a reality. Most students are going to need to take out some amount in loans to pay for college, but there is no acceptable reason that a student should be surprised by a $900/month student loan payment after graduation.  Proper planning for college is about knowing what to expect.  If you’re wondering what to expect in the coming years- sign up for a free consultation with one of our College Planning Advisors or submit a question.  We’ve been there and we are here to help.


Photo courtesy of: http://www.brynathyn.edu


Estimating College Aid Eligibility Part 1

The process of applying for need-based financial aid for college begins by students and parents completing one or two financial aid forms, the FAFSA (Free Application for Federal Student Aid) and/or the CSS Profile. Any college or university that awards federal student aid must require that students complete the FAFSA in order to determine eligibility for federal aid (it works for most state aid too). Most colleges and universities nationwide use the FAFSA as their sole application for need-based financial aid, so students applying for aid at those colleges only need to complete the FAFSA.

However, there are about 300 colleges which require that the CSS Profile also be completed in addition to the FAFSA. Those colleges use the CSS profile to assess the student’s eligibility for the college’s own institutional aid dollars. Typically, “Profile” colleges are very selective private colleges, including the Ivies, but the University of Michigan at Ann Arbor and the University of North Carolina at Chapel Hill are examples of flagship state universities that also require the Profile.

Calculating the Family’s Expected Contribution (EFC)
Regardless of the aid form (s) the student is required to complete and submit as part of the process of applying for financial aid, and after all of the time and information it takes to complete the form (s), it all boils down to three letters, EFC.

You provide your financial information on the aid forms (FAFSA and CSS Profile), submit the forms online to the processing centers for each respective form, and the information from the forms goes into the aid calculations (the Federal Methodology and the Institutional Methodology). The output of those need analysis calculations is the student’s expected family contribution (EFC) toward the cost of college. The student’s EFC is the minimum amount the student is expected to contribute toward the cost of college. Thus, EFC represents a dollar amount. It is the “output” of the aid forms and calculations.

Both of the EFC formulas focus primarily on the assets and income of the parents and student, family size and the number of dependent children enrolled in college in a given year to assess the family’s ability to pay for college using the income and assets that they have. And because the two formulas calculate EFC differently, it’s likely that the student’s EFC under each formula will also be different.

Using a Student’s EFC to Determine the Need for Financial Aid
EFC is used to analyze a students’ need for financial aid using a simple formula that subtracts the student’s expected family contribution (EFC) from a college’s total cost of attendance (Cost of Attendance – EFC = Financial Need). If a student’s EFC is less than a college’s cost of attendance, then the student qualifies for need-based financial aid.


Photo courtesy of: http://finaid.uncc.edu

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Financial Aid Question of the Month

Q. For several years, I have been taking care of my brother’s student. I’m not the legal guardian and my brother and his former wife are rarely seen or heard from. How does this affect the FAFSA?

A. As long as at least one of the student’s parents is still alive, the student is considered a dependent person and the parent’s information must be reported on the FAFSA even if he has a guardian, legal or not…Unless the school has a documented reason to perform a dependency override which will convert the status to independent. To get a dependency override you will have to contact the financial aid department.

If a student is living with her grandparents or other relatives, the same principle applies. Unless the relatives have adopted the student, their income should not be reported on the FAFSA as parental income. Any cash support from persons other than the student’s parents should be reported as untaxed income. The school may also consider other kinds of support as part of the student’s financial resources and use professional judgment to include the support under the item for student’s untaxed income. Any support the student receives from his or her legal guardians gets reported on one of the FAFSA worksheets, but the student does not list them as parents on the FAFSA.

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Should You Put Your Kids’ Education ahead of Your Retirement?

If you’re like most parents, you want nothing more than to provide your children with a college education. Some have been saving since before their children were even born, but more often than not, a substantial number of parents find themselves in the uncomfortable position where their kids are fast approaching college age, but they themselves are staring their retirement years right in the face. So the question becomes: Should you sacrifice your retirement savings to put your kids through school?

During a conversation about this precise question, a wise insurance professional reminded us that while college-bound kids can always get financial aid, there is no such thing as “retirement aid.” And while it’s a nice wish, paying for a child’s education is not an obligation; and it’s certainly not worth taking out a second mortgage, cashing in a life insurance policy, or tapping into your IRA. Those funds can never be replaced, but your children will earn their own money. I can personally attest to this fact. My parents worked hard their whole lives, but simply couldn’t afford to contribute to my college education. While I could see that this pained them, I knew I could take care of myself. I reminded them that I would far prefer that they enjoy the fruits of their labors and live out their golden years without financial or emotional strain. So, I took out copious student loans to attend a private university where I pursued a double major, made the Dean’s list, and graduated with Honors — all while working 40 hours a week behind a bar, serving drinks to my more affluent classmates. I’m still paying those loans, but I’ll never regret the education I received — an education I earned myself.

While at university, I also noticed a powerful trend among my classmates, the majority of whom had their parents paying their way, and even supplementing their lifestyles with allowances and cars. These kids were no less intelligent than I, yet despite my over-burdened schedule, I was earning As while they were struggling to maintain a C average. It occurred to me that one of the reasons I felt so compelled to achieve was that it was my own money — money I was not about to go to waste. My education simply meant more to me, and my friends who were living off handouts were far less appreciative of their good fortune than I — and probably their parents — would ever have expected.

Anecdotes aside, the easy answer to this dilemma is to take care of yourself before you raid your retirement accounts and assets to fund your children’s education. They’ll certainly survive — and perhaps even thrive — knowing it’s something they’ve earned. Armed with an education, they’ll enter the workforce and establish their own retirement funds. With lifespans steadily increasing, your retirement could conceivably last upwards of 30 years, so ensuring you have the funds to support a long retirement means you won’t become a “burden” to your children, relying on them for shelter, money or care. And if this were to happen, what was all your sacrifice for in the first place?

Keep your nest egg, encourage your children to achieve, and with a solid planning strategy and a bit of luck, you’ll lead a long, happy retirement — one that allows you to spend time doing what you love with those you love, like those grandchildren you’re probably looking forward to spoiling!


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To File or Not To File

That is the question. Sorry. Couldn’t resist. Every now and then families with six figure incomes tell me that they will not be filing financial aid forms because they feel they will not qualify for any financial aid. I also know that hundreds of thousands of students from lower income families don’t file either.

Over the years I’ve learned that parents should file the financial aid forms REGARDLESS of their circumstances. If anything is true, it’s that things can change. Other than the one I mentioned, parents offer these reasons why they don’t file for aid:

1. It will hurt the student’s chances of being accepted
2. Don’t want to share financial their information
3. The forms are complicated
4. Not wanting to take aid from another student

To the point that filing financial aid forms will hurt the student’s chances of admission there is some validity. Some colleges are need-aware and can offer admission to only so many students needing financial aid.

What this can mean is that two students who are academically similar, but one needs aid and the other doesn’t, is that the college will take the student that costs the college less. When a college sees the affluent student’s list of schools applied to, the college can find some money to attract the student.

Not wanting to share financial data is a legitimate concern but the information will be as secure as it is with the IRS. Only a few people will ever see it. It’s true that the financial aid forms are complicated, confusing and time consuming. That’s why we complete those forms for our clients. But if you are doing it yourself, it shouldn’t take you more than ten hours or so to complete all of them (assuming that your student is applying to colleges that have multiple forms). If only applying to a state school or two then it will only take a few hours to complete.

Some affluent families feel it is morally wrong to ask for financial aid when there are so many students that need the money. I won’t argue the ethics. However, these families won’t qualify for most federal grants anyway so they won’t be taking any money from another student. Some colleges also require financial aid forms for academic scholarships. The money won’t go to anyone if that parent doesn’t file.

Finally, we have seen too many instances where something happens to a family’s ability to pay and they want to or need to reconsider their position on filing for financial aid. It’s better to have the paperwork all in so funds can be distributed quickly, rather than it taking months. The last chance to get retroactive financial aid has to before end of classes for the academic year. Consider filing the forms like car or health insurance. You hope you won’t need it but it’s there if you do.

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What To Do If You Need More Financial Aid

Appealing a financial aid award is a common practice but has its challenges. Many parents need more aid than ever, and college endowments have yet to gain back their losses. Some colleges will respond to your request to review your student’s award letter. Reasons why they should do so: your finances have changed; you had unreimbursed employee business expenses, unusually high medical expenses, or your student was offered a much better offer at another college that is very similar to the one he or she really wants to go to.

However, if you ask for more money without documentation of your problems or other award offers, it is doubtful that the school will see it’s way clear to offering your student more money. In fact, when you ask for money and don’t get it, 90% of parents end up sending their student to that college anyway. And financial aid directors know this.

Even if the odds appear to be against you, if you feel that you honestly deserve more help, then ask. The worst thing that can happen is they say no.

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Before You Do Anything Else…

You and your student have been so busy with the application process for so long that it feels as though you should still be working at it until your student has that acceptance letter in hand. It’s difficult to stop. Here are a couple of things not to do:

  • There is no reason to call admissions to check on the application. The admissions process takes time. Calling constantly to check on the status of the application will not help. Calls from parents especially will not help. Unless there is a major change in some information in the application, do not call.
  • Don’t ask your student if she has heard anything, or whether her friends have heard anything. It’s time to put this on the shelf and let her enjoy high school for a while knowing that the job was well done. Let her live in the NOW.

If you wish to discuss graduation rates with admissions, I’ve found it productive to ask what steps your student can take to increase the chances of graduating in four years rather than asking why the four year rate is low (or low compared to others).

Here are some top reasons why a student might not graduate in four years:

  • Transferring to another college
  • A change of direction or major
  • College not offering enough classes each semester
  • Completing a double major
  • Failing too many classes
  • Artificially raising GPA to keep scholarships by withdrawing from too many classes
  • Low GPA
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Hedging Your Investment


Here’s a leading question: Would you rather put your money in something that had a 70% chance of paying off or an investment that had only a 25% chance? Without knowing the four, five and six year graduation rates of the colleges your student is considering, you could be backing a losing horse! You might be awestruck to learn that many parents are sending their children to colleges with a four-year graduation rate of less than 25%.  I’m not going to show you the worst of the worst so let’s assume that your student has an SAT score between 1090 and 1300 Math and Verbal, or an ACT composite score between 24 and 31.  Here are some public and private institutions where they would have a good chance of being accepted and their four and six year graduation rates:When comparing apples to apples you can see that choosing the right college means graduating sooner for less money.  If you wish to discuss graduation rates with admissions, I’ve found it productive to ask what steps your student can take to increase the chances of graduating in four years rather than asking why the four- year rate is low (or low compared to others).  Here are some top reasons why a student might not graduate in four years:

•    Transferring to another college

•    A change of direction or major

•    College not offering enough classes each semester

•    Completing a double major

•    Failing too many classes

•    Artificially raising GPA to keep scholarships by withdrawing from too many classes

•    Low GPA

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Your Best Strategy® to Pay for College

The four key areas that must be considered in the process of determining Your Best Strategy® to pay for college and save for retirement are: College selection, financial aid, tax aid and personal resources.  To make intelligent decisions in these four areas requires specialized knowledge of college admissions, financial aid, taxes, and financial planning. Even if you have people advising you in these areas, it can be difficult to pull that expertise together specifically for college planning and retirement purposes. Let’s take a look at an example to gain perspective. Parental income is the biggest factor in the calculation of a student’s expected family contribution (EFC), the minimum amount the student/family is expected to contribute toward the cost of college. The most common allowances against income in the EFC formula are: federal taxes, state taxes, FICA taxes, and an income protection allowance.

So the amount of taxes you pay helps reduce the amount of income that gets calculated in the EFC formula. Therefore, the more tax the parents pay, the lower the EFC is. But conventional financial planning strives to help parents pay less tax, not more. So you can begin to see how complicated college planning can be by just looking at two variables.Things like retirement plan contributions, whose names assets are saved in and what types of ac‐ counts those assets are in, are also big factors in determining EFC. The reason that a student’s EFC is so important is because it is part of what is referred to as financial need analysis, where the EFC gets subtracted from a college’s total cost of attendance to determine if the student has “need” for financial aid (Cost—EFC = Financial Need).

So it is safe to say that anything that affects your income, taxes and non‐retirement assets may also affect a student’s EFC, and therefore possibly the student’s aid eligibility. However, note that the first variable in the need analysis formula is the cost of college.Therefore, you can see that college selection may directly affect a student’s aid eligibility because, based on cost, a student with an EFC of $20,000 will demonstrate need at a college costing $45,000, but not at another college costing $18,000 per year. Moreover, the American Opportunity Tax Credit is an example of what we refer to as “Tax Aid”, and is available to some taxpayers when they pay qualified college tuition costs. So college selection, financial aid, tax aid and your personal resources are all interconnected. Which is especially important considering that what parents spend on college they don’t have to save for their retirement. It is fair to say that there is a lot more to college planning than applying to a few colleges and completing a financial aid form. Moreover, the college decisions you make today will create ripple effects for years to come. Hopefully this newsletter will help you make them well.

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Your College Search

What do Lewisburg, PA, Brunswick, ME, Clinton, NY, Gambier, OH; Northfield, MN and Middletown, CT all have in common? They are each home to some of the finest examples of post‐ secondary education in the United States. Bucknell, Bowdoin, Hamilton, Kenyon, Carleton and Wesleyan along with a few thousand others are what make this country so rich, so envied in the global educational hierarchy.  Why, do you suppose, with all of the obstacles presented by endless application requirements, restrictive immigration procedures, out‐of‐sight costs of attendance and all‐too‐often blatant cultural insensitivities, do half a million foreign students per year continue to flock to these shores to be schooled? Simply put, because our schools are the best in the world! Sure, there are Oxford and Cambridge, Polytechnique and HEC, Monash, Keio and McGill, but for sheer numbers and overall quality, no nation on earth can rival ours when it comes to getting a college degree.  That doesn’t mean that college is for everyone, but the majority of high school students that do choose the college path can select from a wide variety of two‐year and four‐year programs to earn an associate degree, bachelors degree, or even pursue a masters or PhD. So there are a lot of colleges, with a lot of majors and degree programs in America from which to choose.  The biggest challenge then often becomes how to navigate through all of those colleges, degree programs and areas of study, without becoming overwhelmed, confused and frustrated. Constructing a narrowed list of potential colleges, investigating them thoroughly, identifying those that best meet your needs and choosing a final grouping which represents the best choices for you or your child is extremely important.  With proper attention, focus and realistic expectations, this is not a terribly difficult exercise. There are, though, a few rules to follow as you embark on this exciting quest.

First, do not play the “name game.”  What is Dartmouth, anyhow? Or Andover or Groton? Or Stanford, Rice or Smith? For one, they are wonderful examples of education at its finest. For another, they are about as different as they can be with very diverse communities, philosophies and pedagogies.  So, if you think you know a place because you’ve heard of it, your friends go there or their basketball team played in the NCAA basketball tournament … well, you don’t. And don’t bother with rankings which purport to rate schools and colleges on some scale by manipulating suspect data and employing meaningless methodologies.  Your mission, remember, is to figure out what works for you and find those institutions which value your unique characteristics. 

Second, cast your net widely.  Research all of those unusual names and places which you may never before have thought much about, and come away with a working file to go forward with.  Now, the real fun begins: the sense of discovery when your list of names takes on shape and size as you delve more deeply into what they have to offer you.  Read the guides, spend time exploring the web sites, take the virtual tours, scan the school newspapers, email a teacher or professor in a field that you find interesting, join the chats, correspond with a student and, eventually, arrange for an actual campus visit.

Third, when you go for a visit do it all. Take the formal tour. Ask questions regardless of how reticent you may be, and listen to the answers. Arrange for an interview where you can, and remember the name of the person with whom you spoke; it’s a good idea to get their card and write a simple thank you note, because you may want to stay in touch. Then go out on your own and really look around campus. Visit a dorm, a lecture hall or classroom, the lounge, café or student center. Summon the courage to ask a student what they like about being there and most will be happy to talk with you.  Now that list of yours has some flesh and blood! When you get around to refining it, you’ll have reasons for why certain schools will remain and why others can be crossed off. It will be your list, for your reasons, and to your specifications. You know what’s good for you.

Now it’s time to talk about how admissions committees know if you are good for them.  Enrollment committees seek to construct the truth about candidates as best as they can. Naturally, as a candidate for admission you have the most to say about who you are and why an institution should desire your presence in its fold. When you say what you have to say, be honest, straightforward and genuine in your presentation of yourself. Occasionally, we lose sight of exactly what college is really all about, that is academics! Sure, there are lots of other activities associated with attending educational institutions, but what matters most to admissions committees is success in the most rigorous curriculum for which you qualify and a showing on standardized testing commensurate with your ability. Nothing can change this reality. Therefore, your most important task will be to soberly and objectively assess your academic performance as it relates to an institution’s profile and make your selections accordingly. Yes, personal statements can be compelling, especially if they emphasize a unique aspect of your character or point out something positive not otherwise apparent in your application. Teacher recommendations can make persuasive arguments as to why you deserve to be seriously considered as a force in the classroom. Athletic, creative or artistic talent can be highlighted, especially where these traits are valued, and exceptional service can be touted, since it describes the potential contribution you will make to your new community.  However, there is no substitute for the highest achievement in the most demanding courses, accompanied by stellar performance on entrance exams. That’s just the way it is, so don’t get too caught up in what you might have read about needing lots of community service or extracurricular activities. You now know what really matters most; academics!

Going to visit some colleges? We can help you estimate your aid eligibility and likelihood of admission, before you visit.

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