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.

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.

   

Is The Idea of Need-Based Aid Flawed?

     An article in the February 21st New York Times focused on the infamous FAFSA - Free Application for Student Aid - the gateway form for getting money for college.  The story focused on how terrifying, confusing and frustrating completing the form has become.  As with just about everything associated with college, the views of the people interviewed show that change is not going to happen anytime soon.

    In my opinion - and the opinion of many others involved in helping families pay for college - the basic premise of need-based financial aid is flawed. Therefore, the system designed to measure the need and then determine how to meet that need is flawed! 

    What is that flawed premise? 

     The idea is that (a) everyone should have access to college regardless of ability to pay and (b) if you cannot afford the cost of a particular college, the "system" should fill in the gap between what you can afford and what it costs. 

      This premise sets up the need to detemine how much you should pay based on your financial situation called the Expected Family Contribution (EFC).  That means someone has to decide how to measure your ability to pay (EFC) and then set some value or percentage that you should pay before getting outside help.

     This also sets up the assumption that someone else will fill in your gap between cost of attendance (COA) and your EFC.  That "someone" starts with the government (Federal and State) and then the individual college. What has happened is the need gap is NOT being filled.  For too many families, the FAFSA has simply become a loan application!

    I have several students with ZERO EFC getting nothing but Federal loans. The get the maximum in loans, grants and work-study but still cannot get close enough to the cost to make college affordable.  Unless a college meets 100% of need for all admitted students, families will face gaps as severe as before the premise of need-based aid!

    So before we discuss changing the FAFSA, how about revisiting the ENTIRE concept of paying for college!  Your comments?

   

ERROR IN THE 2009-2010 FAFSA?

      The 2009-2010 Free Application for Federal Student Aid (FAFSA) contains could be a major problem in how parent and student assets are being defined.  The FAFSA Worksheet and the online FAFSA form both include UGMA/UTMA accounts in the definition of parent assets!  This is either an error or a complete redefining of what is to be included as a parent asset by the Department of Education.

      A UGMA/UTMA account is the way a minor owns financial assets until they are 18 or 21, depending on their state of residence. The asset is in “trust” to a guardian who is an adult responsible for managing the account for sole benefit of the child owner.  Most UGMA/UTMA accounts hold mutual funds, stocks or bonds in the child’s name and are usually managed by a parent or grandparent who gifted the original asset.

      Until this current 2009-2010 FAFSA, a UGMA/UTMA account(s) was listed on the FAFSA as athe filing student’s asset regardless of their age. The good news is redefining a UGMA/UTMA asset as belonging to a parent reduces and could even eliminate the impact of the asset for calculating the Expected Family Contribution (EFC)!  Unfortunately, the FAFSA then uses the exact same definition of an asset including UGMA/UTMAs for the student asset section of the 2009-2010 FAFSA.  This could lead to three potential errors for families filing FAFSAs:

1.  Listing the UGMA/UTMA as both a parent AND student asset thus counting the same asset twice for calculating the EFC,

The NEW Scholarship Scam

     Just got a nice eMail from a mom who had purchased my Linda P. Taylor's Insider Secrets to Scoring Scholarships eBook and video system.  She said was SHOCKED to learn about the "dirty little secret" about internet scholarships "harvesting" data and reselling it!  She had always thought the scams cost money and didn't realize a free site could be a problem!  She had also gone to my blog posting about about hidden traps and was really concerned about her son searching for money they desperately needed for college.

     I shared with her (and want to share with blog readers) how to fight these NEW wolves in scholarship sheep's clothing!  As the market melts down, more and more families are going to the internet looking for scholarships.  And I want you to be prepared for the good, the bad and the ugly of FREE scholarship search sites!

    In the good old days, a scammer would send you a letter and promised you a list of scholarships and maybe financial aid for a small fee.  They "covered" themselves by sending you a virtually useless printed list of scholarships and maybe some free information on how to find and write letters.  Most of those wolves were pretty much run out of town by  FTC enforcement and by the proliferation of free internet search sites that made them irrelevant. 

    But the wolves didn't go away.  The word "scholarships" is just too juicy as a marketing tool to give up.  So they moved to the internet and changed their focus.

   What I call the "new wolves" are companies that offer a scholarship or may offer nothing from their pockets but are aggregating everyone else's scholarships into their website.  The applicants are asked for large amounts of data so their "search" can be more successful.  But what the students don't know is their INFORMATION IS BEING SOLD over and over again to anyone and everyone who pays for it if they don't actively opt-out.

    Like the old wolves, the new ones cover themselves legally.  They will ask you to opt-out of "third party offers".  But most ask applicants to unclick  a box that says you have read the Terms and Conditions or the Privacy Statement.  They are NOT obvious in what they are going to do with your data if the box stays clicked.  I know they will claim it is your responsibility to read these pages and I agree BUT . . .

    I DO read these as part of my research on safe sites for my clients like the College Leadership Foundation's College eCoaching Program.  Most are in 9-point font, legalese and when they reveal the truth about what they do with your information, it's 5 or six mind-numbing paragraphs down and is fuzzy-wuzzy about what you will allow them to do by not opting-out.

     So how do you know the good ones from the bad ones?  READ the Terms & Conditions and/or Privacy statements before you hit enter!  Sorry, you do need to do that to protect yourselves.

    So you can know what to do, here is an example of a GOOD one from www.CollegeSurfing.com's Privacy section.  It is in PLAIN English and clear.  I have added the color for emphasis.

"As a general practice, we do not sell your personally identifiable information to third parties or mass marketers. However, on particular pages where we ask for your personally identifiable information, we may explicitly tell you that the data we are collecting on that page will be provided to third parties, in which case those disclosures shall override anything to the contrary in this policy. We would also have the right to sell this information as part of a sale of all or substantially all of our assets.  [It's that phrase "explicity tell you" that makes them good guys in my opinion! LPT].      

In some situations, we provide your personally identifiable information to third-party service providers to enhance or expand the functionality available to you as a user of the Site, but this will only be done when you specifically ask us to by responding to a survey."

 Here is an example of one of the a quasi-wolf (in my opinion), www.Scholarships.com. 

"We will not share, sell, rent or otherwise transfer this information without the user's permission, and then only in accordance with the terms set forth in this Privacy Policy. Our website provides users the opportunity to unsubscribe (opt-out) from receiving email messages from Scholarships.com and its marketing partners or from having their information shared with our marketing partners. [you have to opt-out - LPT]"

     Is Scholarships.com actually providing scholarship searches?  Yes.  Are they a scam? No.  Are they doing anything illegal? No.  I don't really have a problem with Scholarships.com selling the names and related information.  What I resent is the fact they are not clear about how they "get paid" for offering all these information to applicants for free!  I get marketing magazines as part of my job to help clients with their marketing needs.  One of them recently featured a FULL PAGE ad that specifically pointed out to interested list buyers all the data they get from the opt-in Scholarships.com eMail list! 

    And here is the site for that I feel is the worst example of the marketing wolves: ScholarshipExperts.  Here's what it says in their Terms & Conditions in small buried print (I added color and bolding for emphasis): 

"When You submit a profile or application, ScholarshipExperts.com may access, store, and use all information included therein for any purpose. Additionally, if You provide permission to do so, ScholarshipExperts.com may sell, share, distribute, or disclose to third parties all information You provide, including scholarship providers, educational institutions and others."

    So how do you protect yourselves?  Follow some of the suggestions in my Scoring Scholarship system!  Get a new eMail address JUST for scholarship searches.  NEVER give out personal information like Social Security numbers or parent income.  And think twice about giving them your telephone numbers.  AND PLEASE READ THE TERMS & CONDITIONS and PRIVACY STATEMENTS!  And when you see the words 'may sell or share', avoid that site!

    Anyone seen their SPAM or junk mail go up after searching for scholarships online?  I would like to backtrack with you how that may have happened.  Send me a comment on this blog OR go to my website and contact me at www.LindaPTaylor.com.

Paying for College When Your 401K becomes a 1K

     Good morning.  You just woke up to yet another bank being bought out, news of the bailout plan being used as a political football, your house value (and your home equity) has fallen another 10%, and your 401k has been reduced to a 1k.   And tonight's dinner table conversation will be about which $20,000 to $50,000 a year college your high school senior should be applying to. 

     Welcome to the new American nightmare -  paying for college while the financial world you were planning to use seems to be falling apart before your eyes.

     So what is a college-bound family supposed to do in today's chaos?

     First, slow down, take a deep breath and focus on what you can control and create a plan.  The reason firefighters seem so in control during an emergency is they have plans for what to do in various situations.  Families who have a plan will not react in panic when something outside their control happens -- they move onto plan B and then plan C.

     I am counseling my families to think of college planning in these turbulent times as a road trip.  You know you want to get from New York to California for a particular budget.  You decide to drive and begin the trip.  You get 30 miles away from home when traffic stops and the radio tells you about a crash on the main highway ahead.  You can choose to wait it out OR take an alternative route.  You probably wouldn't turn around to go home and decide to fly would you?  If you don't know an alternate route you may pull out a map or pull off the highway and ask someone.  College planning in these strange financial times is the same way!

     Have a TRIP (College) PLAN!  Know where you want to go, how much you can afford to spend to get there, and alternatives in case of an emergency.  If you don't know the alternative routes, find someone who does!  And like driving across the desert, I wouldn't recommend listening to advisors who aren't experienced in that dangerous part of the journey.  I often end up fixing college plans that were based on heresay from friends, family and "professional" advisors who are well-meaning but have never successfully created college plans.

     So where should you turn for professional help on your "road trip"?  You can hire college financial planners like me to be your personal chauffer and take over the trip.  But that's an expensive option and not for everyone.  Instead, I would suggest you consider joining a  "AAA" for college planning.  That's why  I am suggesting that all families learn more about the not-for-profit College Leadership Foundation's College eCoaching program. 

     I am proud to be one of the Technical Advisors to the CLF's eCoaching Club.  I feel they are the most cost-effective way I have ever seen for getting help for the college journey for virtually every college-cound family.  They are unbiased and independent so there is no risk that they will send you down a "road" that only benefits a lender or a mailing list company!

     If you can't find or afford a local "Linda" to be the chauffer, I suggest looking into the CLF eCoaching program to help you on your journey.  For a modest monthly fee, you get the information you need sent direct to your family's inbox several times per month. Compared to the ultimate cost of the trip you and your student(s) are about to take, having a college planning "AAA" will be a small but valuable investment.

     In the meantime, if you have questions or concerns about your college future in today's economy, respond to this blog or contact me through my webpage at www.LindaPTaylor.com. 

    

Financial Aid for Foreign Students

This week's NACAC Conference in Seattle provided lots of information that may be of interest to many potential college students.  One is getting financial aid if you are a foreign student.

When asked if there is "traditional" need-based aid programs with state and federal grants and federally supported loans like Stafford and PLUS for non-U.S. Citizens -- the short answer is NO.  However, that does NOT mean a good student cannot receive college-based merit or need-based aid. 

There are six colleges that most of us in the industry knew will (1) admit international students in a need blind fashion and (2) meet their full financial need once admitted.  These schools include Harvard, Yale, MIT, Princeton, Williams, and Middlebury. At this week's NACAC  conference in Seattle attendees learned that Berea College, Colby College and Mount Holyoke also offer aid packages through the colleges to foreign students.

So there is good news is if you are a foreign student, some private colleges may offer aid packages if admitted regardless of citizenship.  It is more likely to happen at "need-blind" colleges meaning they will look at admitting you first regardless of ability to pay.  Once admitted, they will help meet your need with whatever dollars are legally available. 

If this is something you want to explore, check with the college Admissions and Financial staff to see what their policy on college-supported aid would be.  Also ask about the required financial aid paperwork.  Most of these colleges use the Financial Aid Profile in addition to the FAFSA so you will need to make sure you comply with their policies and due dates.

Unsettling Grandparent Question on 529 Plans

   Anyone who follows my blogs and my career as a college funding advisor knows that I am not a fan of 529 Plans as a way to save for college. In my opinion, tax-free growth of your funds is not a good enough reason to use 529s when you discover all the "gotcha's" and gray areas surrounding them!

      One of the big gotcha's used to be 529 plans would impact the Financial Aid of the beneficiary. This was changed  by the 2007 College Cost Reduction Act (CCRA). The Act specifically states that qualified distributions to a student from student- and parent-owned 529s would not be included as student income on the FAFSA and would not reduce financial aid from a college to the student.  However, there is a "gray" area involving grandparent-owned 529s that was brought to my attention today.

     Financial and tax professionals often recommend 529 plans to grandparents like me as a way to move taxable assets out of an estate but still be able to maintain control over the gifted money should the beneficiary grandchildren not go to college. There are generous gifting limits and the growth would be untaxed as long as the distributions were used for qualified college expenses outlined by the IRS.  But the distributions from a grandparent-owned 529 account were NOT specifically mentioned or exempted for financial aid in the CCRA! 

      Some financial aid experts now worry that distributions from a grandparent-owned 529 are student income.  That means they must be included in the FAFSA according to the rules that clearly state  ". . . money received, or paid on your behalf (e.g. bills), not reported elsewhere on this form must be reported."  Financial aid expert Mark Kantrowitz argues that distributions are exempt regardless of ownership based on the intent of all the regulations even if it grandparents are not specifically named.  But Joe Hurley, the CPA who is considered "THE" expert on 529s, feels the situation is ambiguous. 

       So what do you do?

  There may ways to avoid financial aid impacts by changing ownership to the student or parent. HOWEVER, you MUST work with a VERY experienced college financial and/or tax planner famiiar with 529 rules. The process for gifting and changing owners between generations for 529s can be very confusing and complex.

      Grandparent-owned 529s are now firmly in the gray area and that makes me uncomfortable recommending them.  Students applying for federal financial aid face potential legal and tax consequences if they receive disributions from a grandparent-owned 529!  If a student does not include distributions on the FAFSA and it is later found they should have been counted, there could be taxes and the requirement that aid be refunded!  If a student does include the distribution and it is later found to be exempt,  they will have potentially lost financial aid including grants and scholarships for no reason!

      If you are a grandparent with a 529 Plans, meet with the advisor who sold them to you and get a written opinion on their impact on financial aid including IRS and Department of Education citations. If you do not yet have a 529 plan, discuss other tax-advantaged ways to save for college such as trusts and insurance products like cash value life insurance and annuities.

529 Plans and the Market!

The market hit extends deep into the pockets of college-bound and college families!  The market melt-down has impacted many 529 Plans!

If your 529 plan uses mutual funds, you probably took a hit.  Mutual funds are "buying clubs" that invest in stocks, bonds and real estate products.  So where these financial vehicles go (up or down) is where your mutual funds go.  And where your mutual funds go (up or down), there goes your college money.  And depending on your combination of mutual fund subaccounts - that hit could be anywhere from 1 to over 10% in losses.  Here is a printout from today for Vanguard which  I randomly selected to show you what may have happened to your 529 Plans.  Click on the page to link to the original.

Depending on who runs your 529 and what mutual funds they use, you may find yourself with much less than you had last Friday! 

I would recommend you call the financial professional who sold you the 529 Plan to see what makes up your investment and where you stand.  Discuss your options with someone knowledgeable.  BUT PLEASE DO NOT do anything rash!  There are potential tax consequences to changing or liquidating accounts.

HOWEVER, if you no longer have any gains inside your account, this may be an opportunity to move your funds to a non-529 location.  If you wanted to access your 529 for non-college reasons but were hesitating because of the tax hit, this may be a good time.  Again, discuss this with your financial advisor! 

I would also recommend you talk with an experienced COLLEGE financial professional to review all your options for college savings.  There are vehicles that are not as susceptible as mutual funds to market forces.

If you own or sell 529 Plans, let me know what you think . . .

Warning about HIDDEN Scholarship Traps

WARNING, what you are about to read is what I call the second "dirty little secret" about scholarships (the first dirty little secret is Resourcing).   What I am talking about is the sale of  the information you provide for a scholarship application or search!

With fewer and fewer exceptions, almost ALL the scholarships on the web are simply fronts for marketing and list-building companies.  Once you finish this posting you may never want to apply for an on-line scholarship again!

I spend most Sundays watching auto racing while surfing the web for tidbits and to find "safe" websites for my clients like the College Leadership Foundation's College eCoaching Program.  Well, I just found another one of those HIDDEN relationships between a marketing company and a scholarship that make me so angry! 

I don't mind a company using a scholarships as a marketing tool as long as it is absolutely clear ON THE SAME WEB PAGE as the scholarship offer that they will be sending you information from their sponsors and partners.  A "good guy" example is Financial Aid Podcast with Chris Penn which makes no secret that its $10,000 scholarship is directly related StudentLoan Network.

What I call the "bad guy"  sites are ones where the only thing you see is information about  scholarships and maybe some window dressing about financial aid.  Their relationship with marketing and list companies is buried in 7 point font on page 15 of micro-mini pages under Terms & Conditions or Privacy which is usually at the bottom of the page, again in micro print but in such a light color that it is almost invisible!  Oh they cover themselves legally by asking you to opt-out by unchecking an already completed box.  But unchecking the box make it look like you might miss out on another scholarship or special offer!

These people attract MILLIONS of students by offering one scholarship worth as little as $500 all the way up to $10,000. Your email and any other information you include to "qualify" for the scholarship is then used, sold and re-sold for years.

What is insidious about these marketing scholarships is they get "filtered" and passed along in ways that make them seem safe.  Aggregators like FastWeb are full of  marketing scholarships like BrickFish.  These not-so-nice sites also get passed along by high school counselors and groups like NACAC who are just trying to help students.  But others are affiliates who get paid to send you to these scholarship sites! Now social media is passing them along and it's pissing me off!

Today I found a GREAT example of how families are being duped through SOCIAL MEDIA!!  It started with a Twitter message I got that referred me to the blog "College Finance 101".  Inside the site was a blog entitled FREE COLLEGE MONEY.  Inside the blog was a link to ScholarshipExperts dot com site.  What made me mad was this was an affiliate tag so the blogger is either being paid per click or per applicant.  From there, I was asked to fill in my basic information on the squeeze ScholarshipExperts front page. 

So what's so bad about that process I just described? Several things.  First, I now don't know whether or not I can trust the content of College Finance 101.  There may be some fabulous information in that blog but it is now tainted because I have to worry what else is a hidden front for affiliate marketing.  I have no problem with ads or banners or stated affiliate relationships.  I do have a problem with a link that looks like an endorsement without revealing the relationship is financial!

Finally, here is what ScholarshipExperts says in its Terms & Conditions (I added color and bolding for emphasis): 

When You submit a profile or application, ScholarshipExperts.com may access, store, and use all information included therein for any purpose. Additionally, if You provide permission to do so, ScholarshipExperts.com may sell, share, distribute, or disclose to third parties all information You provide, including scholarship providers, educational institutions and others.

This is why I wrote my Insider Secrets to Scoring Scholarships.  It shows ALL the good, the bad and this ugly kind of stuff that everyone else leaves out!  I hate scholarship hyprocrisy.  I like my data straight and to the point.   If you are an affiliate, carry the ad or banner, don't bury it in your blog.  If you sell the information, say so.  If there is going to be someone calling you about the offer, say so.

To learn more about my crusade against scholarship abuses, visit www.LindaPTaylor.com