Showing posts with label student loans. Show all posts
Showing posts with label student loans. Show all posts

Wednesday, January 2, 2013

Do We Need College?


Do we need college?

This is a question that many are asking these days. The cost of college has risen over 1200 percent in the past thirty years, bringing it far out of reach for many families.   Often, families without means struggle to send their high-achieving students to the best universities despite the sacrifices they must make, and financial difficulties can often prevent these students from graduating.

As a teacher, I find myself in the midst of the reality of this firestorm.  I firmly believe that a college education can set people apart in their career, when done right, but when students do not consider all the options, they can end up with a lifetime of crippling debt that cannot be forgiven with bankruptcy.  Many experts feel that the student loan bubble will be the next strain on the nation’s economy.

This is why it’s so important for students and families to truly understand the college admissions process. As with any other major life decision or purchase, colleges and universities must justify their value to you.  You must consider the return on investment. 

All too often, students bring me letters that seem like honors and awards, but they are really thinly veiled predatory loans masked in beautiful marketing.  It’s college application season now.  I see people prepared to saddle themselves with fifty to sixty thousand dollars of debt a year if they don’t get aid.  Does that sound like you? That’s the price of a house if you graduate in four years. The trend today is to take five years or more, and while high schools collect statistics about graduation rates, getting penalized if they’re low, colleges do not get punished. In fact, the longer you stay, the more money they make. 

Students are encouraged to study areas of interest, take semesters off, and go where the heart leads them. While this is good advice in the realm of learning, it often leads to heartbreak when choosing an expensive university and a career path that cannot pay back those loans. At graduation time, students find themselves in the position of having to chase the dollars to pay back the bank anyway.

I have been thinking about this a lot lately, as I watch parents and students warm up their pens to sign huge loans that will become their best friends for years to come.  I wrote a post on my blog called “College or a Ferrari?” because I feel it’s critical for students to really analyze their college choices once the aid packages are delivered, and to think about the return on investment for each potential major.  Also, students must commit to maximizing the benefit of college. Sure, you should have fun, but if you’re not ready to hit the books, consider taking classes at a local community college, or enlisting in the military--who, by the way, will pay for your college while you serve your nation. It’s the school of life, and it’s very effective. 

I made a Learnist board dedicated to helping families make these decisions. You cannot make a decision which has the potential to cost $200,000 based on emotion--you must consider the facts… college can be worth the investment, but the decision is no different from buying a house or a car. I've recently done both. There were things I would have loved, but they were just out of reach and not practical for the lifestyle I lead. In the end, I got a practical car that can handle the potholes my area that will never be fixed, and a house where I can live simply and get off the grid, like I've always wanted to do. No mansion. No Ferrari. And I’m just as well off for it. 

If you are going to college next year, do your research, work hard in school, and get your ducks in a row. And when the mailman comes with all your acceptance letters--and hopefully your financial aid, don’t forget to really think of colleges that will serve you for a lifetime, not just four or five years.  

About the Author:




I teach Social Studies at the William M. Davies Career & Technical High School in Rhode Island. My passions include research, writing, history, sustainability, fitness and social justice. I'd love to see tech innovations to level the playing field in education. I'm a big fan of our local farmers, sustainable agriculture, and all things natural and tasty. I blog and run in my spare time.

Thursday, April 5, 2012

Does Financial Aid Make College More Expensive?

This Story Appeared in The Boston Globe
March 25, 2012
By Paul Kix


If a college economics class does its job, students will soon realize that even their professors don’t understand why their schools are so expensive. Over the past three decades, college tuition has increased at more than double the rate of inflation. Outstanding student loan debt in the United States now exceeds $1 trillion, a national burden even greater than that of credit cards.

Yet no one agrees on what makes college tuitions so high. Plush state-of-the-art gyms? Classroom technology? The cost of health care, the glut of administrators, too many professors focusing on research at the expense of teaching?

Then there is another theory, one that for 25 years has remained as controversial as it is counterintuitive: that the culprit is federal financial aid. Schools know that students have access to tens of billions of dollars in grants and loans, the thinking goes, and they raise tuition because the aid lets them do it.


This idea — essentially, that federal aid enables college administrators to get greedy — is known as the Bennett Hypothesis, after William Bennett, the conservative thinker who was President Reagan’s secretary of education. Since he first floated it in the 1980s, the Bennett Hypothesis has been debated in economic journals, congressional reports, and popular books. Studies have affirmed it, affirmed it in part, refuted it entirely, kind of refuted it, and many gradations in between.

It is, to say the least, a tough thing to test. And its unruliness stems in part from the colleges themselves. All traditional colleges accept federal aid, and they spend their money in idiosyncratic ways. Is a college public or private? Has its home state just slashed higher-ed funding? How does it fare in the U.S News & World Report rankings? Are there other competing universities nearby? These differences tend to shield the whole issue in opacity.

But a recent study has looked at the effects of financial aid in an unexpected place: for-profit colleges. The for-profit sector — national chains like The University of Phoenix as well as smaller technical institutes — has grown tremendously in recent years, and it offers new and little-examined data on the price of an education. For an economist, the beauty of the for-profit sector is that such schools can choose to either receive federal aid or not, allowing for a cleaner comparison than with traditional schools.

The recent paper, by economists at Harvard and George Washington University, compared more than 2,650 programs within for-profit schools in three states over multiple years, and found that the schools receiving federal grants and loans set their tuition roughly 75 percent higher than those institutions that go without government support. This discrepancy in costs has everything to do, the authors write in the study, with the aid the schools receive — “lending credence to the ‘Bennett hypothesis’ that aid-eligible institutions raise tuition to maximize aid.”


The National Bureau of Economic Research published the paper in February, and since then the argument over the Bennett Hypothesis has returned to the front of the debate over college costs. Conservatives crow that the study proves what they’ve known all along. Even liberals admit the hypothesis seems legitimate. Six days after NBER unveiled the paper, Vice President Joe Biden told an audience at Florida State University that “government subsidies have impacted upon rising tuition costs.”

The authors of the study caution they researched the for-profit sector only, and haven’t tried to test the hypothesis among traditional four-year colleges. Even if their finding holds and is applicable to conventional schools, it still leaves a very tough question: What to do next? Conservatives have already proposed cutting aid as a weapon against tuition increases. But it’s unknown whether that would stall the escalating cost of college or just limit the number of low- and middle-class students who might attend. If college is already too expensive, and aid only exacerbates the problem, it raises the unsettling prospect that making college cheaper might actually exclude some poorer students.

***

College tuition wasn't always a national crisis. As recently as the 1970s, the price of tuition actually declined by 17 percent at public universities, and 13 percent at private ones, according to data from the American Council on Education, a leading higher-ed lobby.

By the 1980s, however, things had changed. The price of tuition started to climb: By the end of the decade, it was up 47 percent at public universities and 54 percent at private schools, according to the council. What was different? Student populations were changing; college degrees were becoming more important. And Congress had mandated more federal assistance. In 1978, President Carter inaugurated the modern era of financial aid by signing the Middle Income Student Assistance Act, which had the effect of offering federally subsidized student loans to anyone who qualified for college, regardless of income. During the Carter and Reagan administrations, the government further expanded federal aid, including Pell grants and Perkins loans for needy students. From 1978 to 1981, total available aid grew by 70 percent, to a total of $14.7 billion, according to the Congressional Budget Office.


As Bennett tells the story today, he formed his theory while serving as Reagan’s secretary of education from 1985 to 1988, touring roughly 60 universities and meeting with provosts and presidents. For a Republican like Bennett, that meant asking them why college tuition was so high. Why was it growing two to three times the rate of inflation? Bennett says university officials told him the answer had to do with the federal assistance the schools received. When parents or students balked at higher prices, college administrators could tell them not to worry; federal aid meant the true cost of college would be much lower. The argument had a cyclical perversity to it: As tuition climbed, so did the number of students who relied on aid to offset it. The very loans meant to help students afford college were making college more unaffordable.

Bennett took to The New York Times’ opinion page, and on Feb. 18, 1987 wrote: “[I]ncreases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.” Though federal aid policies may not directly cause tuition to rise, Bennett argued that “there is little doubt that they help make it possible.”

The research done on the hypothesis since then is enough to induce whiplash. In their 1998 book, “The Student Aid Game,” economists Michael S. McPherson and Morton Owen Schapiro said public colleges and universities tended to increase tuition by $50 for every $100 in aid. In 2001, however, in a report for Congress, the National Center for Education Statistics found no evidence to support the Bennett Hypothesis anywhere. A 2003 study by Cornell University economists Michael Rizzo and Ronald Ehrenberg didn’t find evidence among public schools, but a 2007 study from University of Oregon economists Larry Singell and Joe Stone found a nearly dollar-for-dollar match at private institutions.


The professor whose work sparked the latest brouhaha didn’t set out to start one at all. She wasn’t even looking at the Bennett Hypothesis. Stephanie Riegg Cellini was an assistant professor of public policy and public admninistration, and economics at George Washington University and interested in the for-profit education sector, an industry that other academics seemed to be ignoring. She found that even the federal government had no idea how many for-profit schools there were. In California, the government estimated there to be 500 such colleges, but these were only the schools that received federal aid for their students. Cellini counted roughly 2,000 for-profit colleges in the state, most of which did not receive federal aid and were not accountable to anyone but the board that licensed them. (Some schools choose to forgo aid for various reasons, one of them being the accreditation that accompanies it is too expensive.)

Cellini presented her findings at a lecture at Harvard in December 2009. Afterward she met with Claudia Goldin, an economics professor there, who recommended they pair up. “I’m a data digger,” Goldin says. The data from certain states were rich with details. And because some of those colleges offered aid and some didn’t, one thing Goldin and Cellini could test was the Bennett Hypothesis.

They focused on colleges in Wisconsin, Michigan, and Florida, three states in which they could see comparable data on tuition and programs offered. The authors discovered that the schools that received aid charged roughly 75 percent more in tuition than the schools that didn’t.

The economists tried to control for quality. Maybe the aid-receiving schools graduated more students or offered more and better classes. They didn’t. They charged higher tuition, it appeared, because they got aid. “Sound economic theory suggests that if you can get more money to raise tuition, you will,” Cellini says. The National Bureau of Economic Research published their paper last month.

***

Their work came at a timely moment. The National Association of Consumer Bankruptcy Attorneys issued a statement in February saying they feared student loans will be the next “debt bomb” to ravage the country. The new education plan President Obama outlined in January uses federal aid as a stick, proposing to tie how much schools receive to how low they can keep tuition. And Vice President Biden, out promoting the plan at Florida State, said something must be done because the Bennett Hypothesis seemed to be real: “It’s a conundrum,” he added. (A White House spokesman, Matt Lehrich, tells The Boston Globe: “There is no evidence to suggest that federal aid is a driver of tuition increases, but it’s absolutely true that the formula we’re using to distribute campus-based aid right now has not created the right incentives to bring down costs and promote affordability in higher education.”)


Days after the study was made public, and partly in response to it, Andrew Gillen, an economist at the free-market Center for College Affordability and Productivity, issued a 32-page report that he called “Bennett Hypothesis 2.0,” arguing that to prevent further tuition increases, it was time to start limiting federal student aid to only those who need it, and only at the dollar amounts they need. Richard Vedder, an economist at Ohio University and scholar at the conservative American Enterprise Institute, took Gillen’s proposal a step further, arguing on the higher-ed website Minding the Forum, “The federal government needs to wind down its financial aid commitment. Restrict eligibility for aid to truly low-income students. Impose performance criteria for aid recipients: mediocre students will lose aid. Make the college absorb some of the risk for loan defaults — a lesson we should have learned from the financial crisis.”

But it’s unknown whether cutting aid would actually work, in part because it’s hard to draw a clear causal link between aid and tuition, especially among the not-for-profit colleges that make up most of American higher education. Goldin and Cellini both declined to comment on the applicability of their paper within the traditional, four-year sector.

Higher-education advocates tend to point to state funding as a more important driver of tuition: As states cut support, students need to pay more; when universities have more support, they’ve sometimes actually lowered tuition. In California, for instance, tuition declined in eight out of the 10 years in the 1990s, says Terry Hartle, senior vice president of the American Council on Education, because the dot-com and real estate booms helped the state Legislature fund colleges at adequate levels, easing pressure on the state’s large public higher-ed systems. On the other hand, nationwide college prices climbed from 1984 to 2009 regardless of whether state funding levels were down or up, according to a report from the State Higher Education Executive Officers. Moreover, as Neal McCluskey at the free market Cato Institute pointed out in a recent blog post, cuts in state funding don’t explain “constantly increasing private school costs.”


Because the data contradict themselves, it’s always more politically expedient for members of Congress and a sitting president, regardless of anyone’s political leanings, to expand federal aid. That way no qualified student is denied access to college. To put Bennett’s idea to the test — to cut large swaths of federal funding to hopeful college students — takes a courageous politician, who risks the wrath of not only students and their parents but American universities and their leaders.

This is why federal aid keeps growing. Last year, for the first time in history, students took out $100 billion in loans — money that will end up as revenue for colleges and as debt for students. President Obama wants to lower these costs of tuition by tying the flow of aid to the value schools offer. Gillen thinks one way to do that is to make more college graduates take an exit exam that quantifies what they learned, and that future students could use to decide if they were getting their money’s worth. “It’s not as hard as some people think to begin to reform the system,” Gillen says. But given the huge amounts of money involved, he points out — for the students, the government, and the schools at the heart of it — it won’t be easy either.






Saturday, October 29, 2011

Scholarships

Good vs. Not-so-Good Scholarships
There are three types of college scholarships:
      1.      Merit Based Scholarships
      2.      Private Scholarships
      3.      Campus Based Scholarships 

The most abundant types of scholarships are typically the need-based and merit-based scholarships. You may be surprised to learn that private scholarships can actually work against you with regard to financial aid.
Many students spend countless hours searching and applying for free private scholarships. They locate the sources, gather letters of recommendation, write essays and meet the deadlines. Yet private-sector scholarships make up only about 3% of the college funding awarded annually. We think of this as spending valuable time and energy going after the crumbs. These private scholarships still help pay for college costs, right?  Maybe not!

Many colleges deduct private-sector awards from the money that the school already offered you or would have offered you. Simply put, the money from your private scholarship may go back into the school’s treasury, and is eventually given to another student! The funding package from your college still contains the same proportion of gift aid (free money) and self-help aid (money that student works for or loans that must be paid back), but the college’s “contribution” is now less. Who may really benefit from all of your hard work? That’s right, the college!

Detecting Scholarship Scams
Some college scholarship companies are making false claims regarding their services, such as claiming they can help families receive thousands of dollars in unclaimed free college scholarships.  They assert that there are millions of dollars in unclaimed scholarships just waiting to be awarded.  As you read above, even if you are awarded some of these private scholarships, in some cases it may benefit your college and not you!


Watch out for claims such as:
  • We've already secured funding for your college.
  • "The scholarship is guaranteed or your money back".
  • You've been “pre-selected" by a "national foundation" to receive a scholarship.
  • We have you scheduled for an "interview" 
 

Maximize Your Scholarship Opportunities

  1. Apply only if you’re eligible! Read all of the scholarship requirements and directions carefully to make sure you’re eligible before you send in your application. Your application can’t win if you’re not eligible for the scholarship.
  2. Complete the application in full. If a question doesn’t apply, note that on the application. Don’t just leave it blank.
  3. Follow directions. Provide everything that is required, but don’t supply things that are not requested. You could be disqualified.
  4. Neatness counts. Make several photocopies of all the forms you receive. Use the copies as working drafts to develop your application packet. Always type your application. If you must print, do so neatly and legibly.
  5. Make sure your essay makes an impression. The key to writing a strong essay is to be personal and specific. Include concrete details to make your experience come alive.
  6. Watch for deadlines. To keep yourself on track, impose a deadline on yourself that is at least two weeks before the stated deadline. Use this time to proofread your application before you send it off.
  7. Make copies before sending. Before sending your application, make a copy of the entire packet and keep it on file in case your application goes astray. Make sure your name (and social security number, if applicable) appears on each page of your application to ensure that nothing is lost.
  8. Give it a final “once-over.” Proofread the entire application carefully. Be on the lookout for misspelled words or grammatical errors. Ask a friend, teacher or parent to proofread it as well.
  9. Ask for help if you need it. If you have problems with the application, call the funding organization and ask questions. 
  10. Remember: your scholarship application represents you! Your ability to submit a neat, timely, complete application reflects on you. It’s your face to this organization. Take pride in yourself by submitting your best application.
Any additional tips to share?  Leave your comments!

About Smart Track™ Toolkit: The toolkit is a web based service that assists families with everything from admissions and test prep, to student athletics and financial aid. Our intuitive software and on-demand workshops are key components to making sure students find their top choice colleges, and families can afford to send them there.

About the author: Laura Guarino is the Student Services Coordinator with College Planning Strategies, LLC. Laura has a degree in Human Development from Boston College and is currently pursuing a Master’s degree in School Guidance Counseling.  She is also enrolled in a certificate program in College Admissions Counseling.  Laura is at the forefront of the college admissions process for the families of CPS and The Smart Track™ Toolkit.

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Tuesday, July 19, 2011

A Beginner’s Guide to Financial Aid Part I

As most parents and students are aware, if you need money to go to college then you deal with the financial aid department. These are the people that are in charge of awarding grants, scholarships, student loans, and work-study packages. Figuring out how the college determines who gets money and who doesn’t can often times seem tricky, so let’s try to look at this process in as simple a format as possible.

Now, the concept is that financial aid goes to those families who need it the most. To determine this, colleges use two factors: Cost of Attendance (COA) and Estimated Family Contribution (EFC). Then, the financial aid department uses a simple formula: COA – EFC = NEED.

Your COA is pretty straightforward. It is the cost of tuition, room & board, books, fees, transportation, and an allowance for miscellaneous fees. The COA at a college can change every year, so financial aid is recalculated every year. Remember to include all of the items I just mentioned in your budget, since that is exactly what the college is doing when figuring out your financial aid. If you forget to factor in the cost of textbooks, you may not have enough money when you head off to college in the fall.

Your EFC is a bit more complicated because the college is trying to determine how much money they think your family can afford to spend on college. Unfortunately, your EFC is never going to be as low as you would prefer (unless of course it’s $0), but it is important to know what factors impact your EFC. There are many different things that go into the calculation of your EFC, but four of the biggest influences are Parent Income, Parent Assets, Student Income, and Student Assets. We will cover all of these in more detail in future blogs, so stay tuned as we continue the posts. Other factors that can influence your EFC include the number of family members in your household, the number of students in college at the same time, the ages of each family member, and even what state you live in. If this seems complicated, plenty of other families are thinking the same thing. Much like how a CPA can help you with your taxes, a good college advisor should be able to help you understand your EFC.

The last step in the process is to determine your NEED. This is high much financial aid you may be eligible for. Let’s say for example that your college has a COA of $50,000 and your EFC is $20,000. This means your NEED is $30,000 ($50K-$20K=$30K). Now, does this mean that you’re going to get a $30,000 scholarship? Not usually. Most colleges will award you some combination of grants/scholarships (free money) and work-study/student loans (self help). Keep in mind that money you receive based on this formula is called “Need-Based Aid”. Scholarships that you get for having a really high GPA or good SAT scores are called “Merit-Based” and are awarded based on separate criteria. Even if your EFC is higher than a college’s COA, you could still receive “Merit-Based” aid (so study hard!)

Next time we’ll talk about your EFC in more detail and explore the fact that there are 2 possible EFC formulas a college could use, each with a different set of questions.

About the author: Justin Munio is a Business Development Manager and Financial Aid Consultant with College Planning Strategies, LLC. With a degree in mathematics from SUNY Geneseo and over 3 years working in the CPS Financial Aid Department, Justin is at the forefront of the financial aid process for the families of CPS and the Toolkit.

About Smart Track™ Toolkit: The toolkit is a web based service that assists families with everything from admissions and test prep, to student athletics and financial aid. Our intuitive software and on-demand workshops are key components to making sure students find their top choice colleges, and families can afford to send them there.