Breaking the Small Business Code

Comment on Direct Vs Private Loans - Misdirection is the Game

    This morning I posted a comment to an article from Inside HIgher Ed on the muted response from Financial Aid Advisors (FAA) on the proposal to eliminate private lenders from student loans and let the Federal Government be the only provider  effectively making ALL Federal Family Education Loans (FFEL) DIrect Loans. 

    The article itself is interesting but it is in the comments that we see the REAL problem with student loans!  It is a "them versus us" dialog that shows the gulf is between the colleges and the recipients!      The premise of manyof the comments is the "evil" nature of FAAs and their representative body the National Association of Student Financial Aid Advisors (NASFAA).  Following is my comment to the dialog:

   

We all know one (or more) rotten apples in any group. We also know many good people in that same group. The "good" or "rotten" actions of indivuduals is not evidence of the value or honesty of the group. It is the VALUE of the service that the group renders that counts. The service itself needs to be judged.

The Next Financial Blow - No Scholarships

     Students and their parents are learning the market meltdown has once again hit them in the college funding pocket.  The endowments of many colleges have taken such severe hits that many are being forced to reduce and cut scholarships for the coming 2009-2010 school year.

     A survey from the nonprofit Commonfund Institute of Wilton, Conn., found that college endowments across the nation lost an average of 24% --  one fourth -- of their value by Dec. 31, 2008.  That means at LEAST a 25% cut in scholarships if not more. Here are just a few examples:

• An endowment drop of 22% at Rhode Island College put most of the school's endowed scholarship funds "underwater" - below the amount of money used to start the fund - so the college foundation has decided to STOP payment of endowed scholarships for next year

Prepaid 529 Plans in Danger! - Part 2

    I had no sooner posted my blog artice about 529 Plans being potentially pillaged by Florida Legislature when MSN posts this article about the underfunding of several other PREPAID plans that may destroy the savings of families for college in several states!  To see the full article: CLICK HERE.

    This one is even MORE disturbing than the previous posting. Florida at least had funded the deposits of trusting families so they are getting their promised returns.  There is just so much money sitting in the savings account "lockbox" that the state is drooling over the prospect of unused money.

    Per this article, State-run trust funds for parents who want to pay off college tuition before their children enroll are running short on cash, and program officials worry they won't be able to pay for students who are counting on the money! The rising cost of college and plunging stock market have combined to create a disparity between what some of the 18 states' prepaid tuition plans have on the books and what they're supposed to pay.

    The worst case is in Alabama, where the market meltdown cut funds nearly in half. Alabama officials are telling parents the full cost of college isn't a sure thing. "I thought the money was in the bank," said Montgomery attorney Larry Menefee, who was caught by surprise when he received a letter telling him tuition for his triplet sons wasn't guaranteed.

    WOW!  How would you feel if your PREPAID COLLEGE account was not really prepaid or safe in the hands of the state?!  Is a deal a deal?

  

   

Keeping Florida Legislature's Hands Off College Money

    I just downloaded an article on how the Florida Legislature is eyeing the PREPAID 529 Plan to fill in their budget shortfall!  Get your copy here:  CLICK FOR ARTICLE.

    If you are unfamiliar with 529 Plans, there are two generic types: Prepaid and Savings. 

SAVINGS:  Most families are familiar with the savings plan which is a lot like an IRA or 401(k). You put money into a fund managed by a financial company and pick types of accounts, mutual funds or a CD.  These funds respond to market forces and can grow - or as we have seen in the market meltdown - decrease!  The key for a savings 529 Plan is there is no specific relationship to the cost of college, you are simply saving money in an account dedicated to college. You HOPE you get growth close to the inflation in college prices (sadly, most don't). The sole benefit to using this kind of 529 Plan is the growth MAY be used tax-free if used for properly Adjusted Qualified Higher Education Expenses (AQHEE).

PREPAID COLLEGE SAVINGS:  Prepaid plans are much rarer because where you put money into an account and it is guaranteed to keep up with college inflation. You are literally prepaying college costs. There is no chance of losing money because it is a prepayment of college expenses and NOT an investment exposed to the markets.

    Now there is a REAL risk that money may "evaporate" from this supposedly safe program in the state of Florida.  Your opinion of a potential grab of SAVINGS that were promised to be there for college use by the families who trusted this program?  To me this is a scary road where the legislature uses your money for their pet programs leaving behind IOU's.

    What do you think of this idea? 

Sarah Lawrence Most Expensive College in US

   

    The Total Cost of Attendance (COA) for Sarah Lawrence passed the magic $50,000 per year mark for this current 2008-2009.  SL now has the dubious distinction of being the most expensive college in the US.  Here are some of the others:

Highest Total Cost 2008-2009

College	Total Cost
1. Sarah Lawrence College	$53,166
2. George Washington University	$50,312
3. New York University	$50,182
4. Georgetown University	$49,689
5. Connecticut College	$49,385
6. Bates College	$49,350
7. Johns Hopkins University	$49,278
8. Skidmore College	$49,266
9. Scripps College	$49,236
10. Middlebury College	$49,210
11. Carnegie Mellon University	$49,200
12. Boston College	$49,020
13. Wesleyan University	$49,000
14. Colgate University	$48,900
15. Claremont McKenna College	$48,755
16. Vassar College	$48,675
17. Haverford College	$48,625
18. University of Chicago	$48,588
19. Union College (NY)	$48,552
20. Colby College	$48,520
21. Mount Holyoke College	$48,500
22. Tufts University	$48,470
23. Bard College at Simon's Rock	$48,460
24. Franklin & Marshall College	$48,450
25. Bard College	$48,438

    The SCARY fact is these will likely rise for the upcoming 2009-2010 school year. Historically costs rise on the average of 6%.  That would put everyone of these schools over $50,000 per year!  But in these tough economic times, it will be interesting to see what the rate will be.

    I will also be interesting to see if the colleges loudly announce they have frozen tuition while quietly increasing other "fees" that are not usually noticed.

  

New Spouse Pays for Step-Kids College

    Right on schedule -  I just got my annual call from a divorced parent who got remarried last year and is now trying to keep the new spouse's income and assets "off the college forms".  I usually hear lots of yelling when the new step-parent discovers that their income and assets are now included for college support.

    Then I am always told about the (1) prenuptial agreement clearly stating the new spouse is NOT responsible for the new step-kids and (2) her lawyer has put all her money into a "trust" so it's not really available anymore.  Both of which mean NOTHING to the FAFSA or FAP process!

    So here is today's teachable moment - You get married while you have children in college, the new spouse's income and assets are INCLUDED for the FAFSA if you are the tax custodial parent. They are included for the FAP regardless of whether you are the custodial or noncustodial parent!

    If your ex has tax custody (take a tax deduction), then your new spouse (and you) are not included on the FAFSA. But if your student is at a college requiring the FAP, your new spouse will be included either as the custodial spouse or the noncustodial spouse, period

     PRE-NUPTIALS:  Financial aid providers - the Department of Ed, your state and the college - were not parties to the pre-nuptial and are not legally bound to the agreement.  So the process requires that custodial parents (including step) are included in the income and asset calculation for the FAFSA.  ALL parents including steps are included for the FAP.

    TRUSTS: When parents tell me about a trust tht was set up by a new spouse, they almost always mean a "living" or inter-vivos trust.  But if the new step (or any parent for that matter) has "control and receipt" of the assets in a trust, they are included in the financial aid process.  That means a "living trust" is NOT a real "trust" for college purposes because the donor is usually the trustee and can use the assets any way they like.  The trust would have to be irrevocable and the new spouse would NOT have access to the assets for it to be "invisible" for college purposes.

    If you have any questions, make a comment or go to http://www.CollegeFundingNetwork.com and use the Contact Us form.